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THE IMPACTS OF ASEAN FREE TRADE

AGREEMENT ON VIETNAMS RICE SECTOR
A thesis presented in partial fulfilment of the

requirement for the degree of
Master of AgriCommerce
At Massey University, Palmerston North

New Zealand
Thi Lan Anh Nguyen

4/30/2014
Abstract
This study employs the standard static GTAP general equilibrium (CGE) model
and the GTAP V8 database in order to evaluate the impacts of the ASEAN Free
Trade Agreement (AFTA) on regional production, consumption, trade, and prices
for agricultural and processed foods. Emphasis is placed on the impacts on rice
production and trade among ASEAN members. There are four main findings:
-
Firstly, AFTA leads to a small increase in Vietnams rice production and
exports when intra-ASEAN rice tariffs are reduced to agreed 2015 levels.
However, Vietnams rice production and exports would increase much more if
ASEAN partners would further reduce their rice tariffs to zero (complete trade
liberalization).
-
Secondly, the results of this research support complete trade liberalization
from an economic perspective because it enhances economic welfare gains for

the newer ASEAN members, especially Vietnam. Vietnamese and Thai rice
farmers incomes are likely to improve following complete trade liberalization.
For the other ASEAN members, especially the Philippines and Malaysia, the
major benefits from complete trade liberalization include an increase in rice
consumption, with its positive implications for household food security. In
addition, complete trade liberalization will result in better resource allocation and
increases in production of goods that exhibit comparative advantage in these two
countries.
-
Thirdly, this study draws further attention to a trade-off between food
security in rice and rice self-sufficiency. Complete trade liberalisation leads to

decreased prices of rice and some other foods paid by private households, thus
enabling them to increase consumption of these goods. However, the decreased
rice price and production leads to decreased rice self-sufficiency in the
Philippines and Malaysia.
-
Lastly, the finding of this study supports the trade creation effects of both
AFTA, and complete trade liberalization among ASEAN members, which mainly
involve trade in rice, other food and agricultural goods. This trade creation
outweighs trade diversion in some manufacturing sectors.
i
In brief, the key findings of this study suggest that deeper regional trade
liberalisation through complete rice trade liberalization would greatly increase
Vietnams gains from AFTA and support previous findings that rice trade
liberalization can contribute to improving rice farmers incomes, thus reducing
poverty in Vietnam. The results of this study could also assist policy makers in
ASEAN member countries to better evaluate the pros and cons of further opening
their rice markets in the future.
ii
Acknowledgements
Firstly, I would like to express my deep gratitude to my research supervisor,
Emeritus Professor Allan Rae, for his insightful input, feedback, encouragement
and support throughout my research. I also wish to thank Professor Hamish Gow
for his constructive suggestions at the first stage of my research. The financial
support provided by Centre for Applied Economics and Policy Studies, Massey
University is greatly appreciated as it enabled me to purchase the data needed for
my research.
I greatly appreciate the New Zealand ASEAN Scholar Awards (NZAS) which
was provided by the New Zealand Ministry of Foreign Affairs and Trade (MFAT)
which gave me a precious opportunity to study in New Zealand. I also appreciate
the support of NZAid Student Support Officers at Massey University.
My thanks are also extended to Dr Julia Tanner from Centre for Teaching and
Learning, Massey University and Dr Nguyen Buu Huan, who have been tutoring
academic writing and enthusiastically discussing structuring section of my thesis
throughout my research. I would also like to thank Professor Nicola Shadbolt,
and Mrs Denise Steward from Institute of Agriculture and Environment for
providing information and resource help.
Lastly, I would like to thank my family and friends for continuous support and
encouragement.
iii
Table of Contents
Abstract ................................................................................................................... i
Acknowledgements............................................................................................... iii
Table of Contents.................................................................................................. iv
List of Figures ..................................................................................................... viii
List of Tables ........................................................................................................ ix
Acronyms.............................................................................................................. xi
Chapter One INTRODUCTION.............................................................................1
1.1. Background ..................................................................................................1
1.2. Structure of the thesis ...................................................................................3
1.3. An overviews on the worlds rice production and trade ..............................4
1.3.1. World rice production ............................................................................4
1.3.2. Rice consumption in selected Asian countries ......................................6
1.3.3. Major rice exporters ...............................................................................9
1.3.4. Major rice importers.............................................................................10
Chapter Two OVERVIEW OF PRODUCTION SUPPORT AND TRADE
POLICIES FOR RICE IN SELECTED COUNTRIES ........................................13
2.1. Vietnam ......................................................................................................13
2.1.1. Domestic support policies....................................................................13
2.1.2. Trade policy .........................................................................................17
2.2. Thailand......................................................................................................18
2.2.2. Trade policy .........................................................................................20
2.3. Indonesia ....................................................................................................21
2.3.1. Production and income support policies ..............................................21
2.3.2. Trade policy .........................................................................................21
2.4. The Philippines...........................................................................................24
2.4.2. Trade policy .........................................................................................25
2.5. Malaysia ....................................................................................................27
2.5.1. Production support and income support policies .................................27
iv
2.5.2. Trade policy .........................................................................................27

2.6. China...........................................................................................................29
2.6.2. Trade policy .........................................................................................31
2.7. India............................................................................................................32
2.7.1. Farmer and consumer support policies ................................................32
2.7.2. Trade policy .........................................................................................33
2.8. Conclusion..................................................................................................35
Chapter Three LITERATURE REVIEW .............................................................37
3.1. Regional trade agreements .........................................................................37
3.1.1. Theory of preferential trade agreements ..............................................37
3.1.2. Empirical studies on the impacts of AFTA on Vietnam......................38
3.1.3. Trade creation/diversion of AFTA.......................................................39
3.1.4. Impacts of regional rice trade liberalisation on ASEAN members .....44
3.2. ASEAN members commitment to Uruguay Round Agreement...............45
3.2.1. Domestic support polices .....................................................................45
3.2.2. Market access .......................................................................................48
3.3. Doha Round Agenda ..................................................................................50
3.4. Global rice trade liberalisation ...................................................................51
Chapter Four KEY FEATURES OF ASEAN FREE TRADE AGREEMENT ...57
4.1. An overview of ASEAN free trade agreement (AFTA) ............................57
4.2. Commitments to reduce rice tariffs in selected RTAs ...............................60
4.3. Composition of Vietnams exports ............................................................63
4.4. Vietnams exports to ASEAN market ........................................................64
4.5. Composition of Vietnams total imports ....................................................65
4.6. Vietnams imports from ASEAN ...............................................................65
Chapter Five METHODOLOGY, ASSUMPTION AND DATA ........................67
5.1. Methodology ..............................................................................................67
5.1.1. GTAP Model........................................................................................67
5.1.2. Model assumptions ..............................................................................71
5.1.3. Why is GTAP employed in this research?...........................................71
5.2. Data.............................................................................................................73
v
5.2.1. Data aggregation ..................................................................................73

5.2.2. ASEAN members tariffs.....................................................................75
5.2.3. ASEAN members tariffs on Vietnamese rice.....................................77
5.3. Scenario designs .........................................................................................78
Chapter Six RESULTS AND INTERPRETATION ...........................................80
6.1. Scenario 1 ...................................................................................................80
6.1.1. The impacts of agricultural tariff reforms on Vietnam........................80
6.1.2. Impacts of agricultural tariff reforms on ASEAN members................84
6.1.3. Change in consumption........................................................................90
6.1.4. Welfare outcomes ................................................................................91
6.2. Scenario 2 ...................................................................................................94
6.2.1. Impacts of manufacturing tariff reforms on Vietnam ..........................94
6.2.2. Impacts of manufacturing tariff reforms on ASEAN members.........100
6.2.3. Changes in consumption ....................................................................103
6.2.4. Welfare outcomes ..............................................................................104
6.3. Scenario 3 and 4 .......................................................................................107
6.3.1. Changes in prices, trade and production of rice in ASEAN members
......................................................................................................................107
6.3.2. Impacts of ASEAN rice liberalisation on other agricultural sectors in
ASEAN members.........................................................................................113
6.3.3. Changes in consumption ....................................................................116
6.3.4. Change in rice self sufficiency...........................................................117
6.3.5. Welfare outcomes ..............................................................................118
6.4. Trade diversion and trade creation ...........................................................120
Chapter Seven SUMMARY AND CONCLUSION...........................................124
7.1. Rice prices ................................................................................................125
7.2. Rice imports, exports and production ......................................................126
7.1. Rice self-sufficiency and rice trade balance.............................................128
7.2. Impacts of AFTA trade liberalisation on remaining sectors ....................129
7.3. Changes in private households consumption..........................................130
7.4. Welfare outcomes.....................................................................................131
7.5. Trade creation and trade diversion ...........................................................133
7.6. Conclusion, research limitations and ideas for future research................134
vi
REFERENCES ...................................................................................................138
APPENDIX.........................................................................................................144
Appendix 1: Comparison of types of rice exports among three key rice
exporters ..........................................................................................................144
Appendix 2: Aggregation of region and goods ...............................................147
Appendix 3: Revealed Comparative advantage ..............................................149
vii
List of Figures
Figure 1.1 Share of the top ten largest rice producers ............................................5
Figure 1.2: Rice consumption per capita in selected Asian countries ....................7
Figure 1.3: Rice consumption per capita in selected Asian countries ...................9
Figure 2.1: Vietnam's rice production and exports since 1980 ............................15
Figure 2.2: Vietnam paddy rice price from 2006 -2009 .......................................18
Figure 2.3: Indonesias rice producti on, consumption and area..........................23
Figure 2.4: The Philippines rice production, consumption and area ..................26
Figure 2.5: Chinas rice consumption and production from 1985 to 2013 ..........30
Figure 2.6: Chinas net rice trade* from 1985 to 2012 .........................................31
Figure 2.7: Indias rice production and consumption since 1985.........................32
Figure 2.8: Indias net rice trade since 1985.........................................................35
Figure 5.1 : Interaction among economic agents in GTAP model .......................67
Figure 5.2: Source of a producers inputs............................................................69
Figure 5.3: Firms and private households decision on sourcing goods ..............70
Figure 5.4: Comparison of intra-ASEAN tariffs on agricultural and food products
among ASEAN members......................................................................................76
Figure 6.1: Welfare outcomes of Scenario 1 ........................................................93
Figure 6.2: Changes in Vietnams trade balance following intra-ASEAN
manufacturing tariff reforms.................................................................................98
Figure 6.3: Welfare outcomes of Scenario 2 .....................................................105
viii
List of Tables
Table 1.1 Proportion of rice production to grain production in selected Asian
regions ....................................................................................................................6
Table 1.2: The contribution of rice to calorie intakes in key rice producing
countries .................................................................................................................8
Table 1.3 Major milled rice exporters from 1991 to 2010 ...................................10
Table 1.4 Major milled rice importers from 1991-2010.......................................11
Table 2.1: Comparison between average farm gate price and pledging price of
white rice paddy in Thailand (main crop).............................................................19
Table 2.2: Chinese government spending on subsidy programmes for grains from
2005 2006 ..........................................................................................................29
Table 2.3: Nominal rate of assistance for selected Asian countries .....................36
Table 3.1: Selected studies on the static analysis of AFTA on ASEAN members
...............................................................................................................................40
Table 3.2: Notification to WTO concerning Green Box supports by selected
countries................................................................................................................47
Table 3.3: Summary of commitment to reduce AMS and management of rice
import quota in selected countries ........................................................................49
Table 3.4: Summary of selected studies on the impacts of future global trade
liberalisation on global and Vietnams rice trade .................................................53
Table 4.1: A summary of ASEAN members commitments on tariff reduction
under CEPT...........................................................................................................58
Table 4.2: Tariff rate quota in selected countries .................................................62
Table 4.3: Composition of Vietnams exports in 1997 and 2007.........................63
Table 4.4 Composition of Vietnams exports to ASEAN members in 1997 and
2007 ......................................................................................................................64
Table 4.5: Composition of Vietnams total imports in 1997 and 2007 ................65
Table 4.6 Composition of Vietnams imports from ASEAN ...............................66
Table 5.1: Proportion of Vietnams processed rice exports to ASEAN markets by
level of tariffs........................................................................................................77
Table 6.1: The changes in Vietnams agricultural prices, production and trade
following intra-ASEAN tariff reforms ................................................................81
Table 6.2: Changes in trade balance of ASEAN members following intraASEAN agricultural tariff reforms .......................................................................85
Table 6.3: Key changes in selected sectors in some selected ASEAN members ....
...............................................................................................................................88
Table 6.4 Summary of changes in private household consumption of 30 goods in
ASEAN members .................................................................................................91
Table 6.5: Changes in Vietnams agricultural prices, production and trade
following intra-ASEAN manufacturing tariff reforms ........................................95
ix
Table 6.6: Changes in prices, production and trade of selected goods following
intra-ASEAN manufacturing tariff reforms in ASEAN members ....................101
Table 6.7: Summary of % changes in private household consumption of 30 goods
in ASEAN members ...........................................................................................104
Table 6.8: Changes in aggregate imports and composite import price of
processed rice and paddy rice for ASEAN members .........................................108
Table 6.9: Changes in aggregate exports and composite export price of processed
rice and paddy rice for ASEAN members ..........................................................109
Table 6.10: Changes in production and producer prices of processed rice and
paddy rice for ASEAN members ........................................................................111
Table 6.11: Changes in rice trade balance among ASEAN members ................113
Table 6.12: Changes in prices, production and trade of selected goods in selected
ASEAN member countries (Scenario 3 + Scenario 4) .......................................114
Table 6.13: Summary of changes in private household consumption of 30 goods
for ASEAN members (%) (Scenario 3 + 4)........................................................117
Table 6.14: Rice self-sufficiency in ASEAN members following rice tariff
reduction .............................................................................................................118
Table 6.15: Welfare outcome of Scenarios 3 and 4............................................119
Table 6.16: Contribution to allocative efficiency in ASEAN members in Scenario
3 + Scenario 4 .....................................................................................................119
Table 6.17: Changes in value of ASEANs imports from ASEAN and nonASEAN members by commodities ....................................................................121
Table 6.18: Contribution of import tax to allocative efficiency of ASEAN
members as a group, by commodities.................................................................123
Table 7.1: Percentage changes in producers price and import and export prices
over four Scenarios .............................................................................................125
Table 7.2: Percentage changes in production, aggregate exports and aggregate
imports of processed rice and paddy rice in four scenarios................................127
Table 7.3: Summary of welfare outcomes ..........................................................132
Acronyms
ASEAN: Association of Southeast Asian Nations
BULOG: Badan Urusan Logistik
CEPT: Common Effective Preferential Tariff Scheme
CU: Custom union members
RTA: Regional trade agreement
STE: State-trading enterprise
TOT: Term of trade
URAA: Uruguay Round Agreement Agenda
xi
Chapter One INTRODUCTION

1.1. Background
Agriculture contributes a significant share to Vietnams GDP: an average of 20%
over the last decade. Rice is an important agricultural crop in Vietnam, due to its
key role in food security, poverty reduction, and export earnings. The paddy area
comprises 70% of the total annual crop area in the last decade. On average, from
1990 to 2010, rice accounted for 93% of Vietnams food crop output. The
majority of rural households in Vietnam are involved in rice production.
Approximately one fifth of Vietnam rice production was exported in the same
period, which contributed 20% to the worlds rice exports. Rice, coffee and
rubber contributed approximately 70% to Vietnams agricultural exports
(General Statistics Office, 2010a) . Due to the significance of rice exports to
Vietnams economy, gaining access to foreign markets for rice is a key concern
for Vietnam, during multilateral and bilateral free trade negotiations and
implementation. However, rice is designated as a sensitive product, and
therefore it is exempt from trade liberalisation. Only the ASEAN Free Trade
Agreement (AFTA) includes tariff reduction for Vietnams rice. Evaluating
AFTAs impact on Vietnams rice prices, production and trade is important
because of the lack of recent research on this topic.
Furthermore, in most of the studies on the impacts of AFTA on Vietnams

welfare gain, there are consistent results that AFTA is likely to bring about
economic welfare gains for Vietnam, although Vietnam received modest gains
relative to the original members gain (Fukase & Martin, 2001; Strutt, Hertel, &
Stone, 2010; Urata & Kiyota, 2003). Vietnams agricultural and food processed
exports are key drivers of this gain, because agricultural exports accounted for a
large share of Vietnams exports, and ASEAN markets are important markets for
some of these goods. It is important to note that most of these studies included
rice in regional rice trade liberalisation and assumed that the intra-ASEAN rice
tariff could be reduced to 0%. In other words, these studies neglected the fact that
1
this product is regarded as a sensitive or special product, and therefore, the rice
tariff will not be reduced to 0%. From this situation emerges the question: How
does Vietnams welfare gain from AFTA vary with the inclusion/exclusion of
rice trade liberalisation in AFTA?
Rice self-sufficiency and price stabilisation are among the most common
rationales for ASEAN members exempting rice from trade liberalisation. Dawe
and Timmer (2012) discussed that rice trade protection, together with production
and supporting policies, works towards ensuring price stability for rice, which
benefits poor consumers, rice producers and also results in micro-economic
stability. Clarete (2012) suggested that ASEAN rice trade liberalisation could aid
a reduction in price volatility for ASEAN members, which arises from a supply
shortage in the worlds rice market. In highlighting rice self-sufficiency and
household food security, Dawe (2013) found that rice area per capita is a
significant factor for rice production and rice self-sufficiency in Indonesia, the
Philippines and Malaysia. In order to increase rice self-sufficiency, these
countries need to increase their rice area per capita. However, this is counterproductive, because a certain amount of land for higher profit crops has to be
replaced by the production of lower profit rice crops. In addition, the use of a rice
trade restriction for the purpose of rice self-sufficiency has several disadvantages
because a rice trade restriction causes a distortion in agricultural production in
Indonesia, the Philippines and Malaysia (Athukorala & Loke, 2009; David, Intal,
& Balisacan, 2009; Fane & Warr, 2009). Athukorala and Loke (2009)
hypothesised that should rice trade liberalisation occur, a liberalising country
could better reallocate resources into the production of crops with higher
efficiency and therefore gain from better resource allocation. Sayaka et al. (2007)
found that, if Indonesia reduced its rice tariffs to 0% for rice imports from all
sources, Indonesia is likely to increase its diversification in agricultural
production. However, Sayakas study covered only four agricultural goods. Apart
from this study of Sayaka et al. (2007), there is negligible research that could
investigate the impact of ASEAN rice trade liberalisation on resource allocation
for ASEAN members. Therefore, in order to shed more light on these issues
2
above, there is a need for research with two properties: evaluating several
possible impacts of regional rice trade liberalisation on ASEAN members rice
industries, in terms of production, consumption, self-sufficiency and economic
welfare gain; and taking into account the interaction of rice sectors with the
remaining sectors, following trade liberalisation.
Another important analysis of regional trade agreement is the trade creation and
diversion affect. This analysis is important because trade creation increases
economic welfare gains for AFTA members, as opposed to the converse effect of
trade diversion. In regards to the matter of trade creation/diversion of AFTA,
there exists contradictory results. Fukase and Martin (2001), Toh Mun and
Gayathri (2004) employed an earlier GTAP database and they anticipated that the
formation of AFTA had led to trade diversion. However, studies by Elliott and
Ikemoto (2004) provided a contrasting finding that AFTA led to trade creation,
but the degree of trade creation was lower in the period 1993 1997, than in the
preceding period 1988 1992 1. Later studies by Korinek and Melatos (2009)
examined past trade data, which supported intra-ASEAN trade creation in
agriculture. Since the issue of trade creation and trade diversion, when AFTA
members complete their tariff commitment by 2015, have not been updated yet,
this study therefore attempt to contribute further understanding into this issue.
1.2. Structure of the thesis

This thesis comprises seven chapters. Chapter One provides an overview on the
worlds rice production, consumption and trade of rice. Chapter Two then
explores production support and trade policies that ASEAN members, China and
India, have employed and the influential factors for these rice trade policies. This
chapter also includes discussion on each ASEAN countrys rice trade policies.
This chapter could help a further understanding of the challenges that could face
Vietnams rice exports to ASEAN partners. Chapter Three presents a literature
1
Due to rising competition for market share from China, South American and Eastern Europe.
review that highlights the impacts of global and regional rice trade liberalisation
from different perspectives, such as food security, poverty reduction, production
and consumption of Vietnam and ASEAN members. One section in this chapter
pinpoints the gap in the literature review and highlights the importance of this
research, since it can quantify the impacts of ASEAN tariff reforms on ASEAN
members agricultural prices, production, trade, self-sufficiency, and economic
welfare, especially in regards to rice. Chapter Five discusses the methodology
and data employed for this research. Finally, Chapter Six presents the results and
interpretation. This last chapter also presents summary, conclusion and a
discussion on the research limitations and ideas for future research.
1.3. An overviews on the worlds rice

production and trade
This section provides an overview of worlds rice market, production,
consumption, and trade, and also helps to gain further insight into rice production
and consumption trends in selected countries where rice is a staple food. This
section also assists in explaining the outstanding feature of the worlds rice trade
which is thin and volatile relative to some other commodities, such as wheat and
corn. This explanation then becomes helpful in understanding rice trade policies
of ASEAN members.
Although rice is differentiated by types, level of processing, level of quality and

level of milling (see Appendix 1), this study is not able to capture this
differentiation and therefore considers two rice types: paddy rice and processed
rice.
1.3.1. World rice production

Asian countries account for the largest share of global rice production (see Figure
1.1). Noticeably, in the South East region, rice accounted for 81% of grain
production in 2010, about four times higher than the worlds average share,
namely 21% (see Table 1.1).
4
Figure 1.1 Share of the top ten largest rice producers (Source: (USDA, 2013))
Among Asian countries, China, India, Indonesia, Bangladesh and Vietnam

together account for 72% of the world rice production (see Figure 1.1). China is
the worlds largest rice producer, with production amounting to 31% of the
worlds rice production in 2010, a slight decrease of 7% when compared with
1990. This decrease is explained by the expansion in rice production from
Vietnam, Thailand and Bangladesh. Specifically, Vietnams share of the worlds
rice production increased from 4% in 1990 to 6% in 2010 while Thailands share
increased from 3% to 5% at the same time. Noticeably, only Indonesia and
Bangladesh are the worlds largest rice producers as well as rice importers
because their domestic production does not fulfil domestic demand. Taken
together, due to Asias dominant share of rice production, it has been the leading
rice exporting region, supplying for almost three quarters of total rice exports in
2010.
Table 1.1 Proportion of rice production to grain production* in selected Asian

regions (%)
1990/1991
1995/1996
2000/2001
2005/2006
2010/2011
The world
on average
20
22
22
21
20
East Asia
41
39
41
36
33
South Asia
49
46
47
49
46
Southeast Asia
82
84
84
82
81
Note: *Grain include rice (milled), oat, barley, wheat, maize, mixed grain, wheat
Source: (USDA, 2013)
1.3.2. Rice consumption in selected Asian

countries
Food consumption patterns in many East Asian countries exhibit substantial
changes. Such changes occurred in three stages (Rae, 1995). Consumption per
capita of staple foods, e.g. rice, increased in the first stage, and then non-staple
foods (such as wheat) increased in the second stage. At the third stage,
consumption shifts toward higher protein and higher value foods, such as meats,
vegetables and fruits. Rice consumption per capita reduces with increased
income in China, Thailand, India, the Philippines, Indonesia, Malaysia, Vietnam
and Bangladesh , but increases in the Philippines (2010). Timmer, Block, and
Dawe (2010) predicted that there will be a significant decline in rice
consumption per capita in the next four decades due to an increase in national
income and labour migration from rural to urban areas during that period. It is
important to mention that there is a diversity in rice consumption per capita
among regions within a country as well as among different countries. However,
further discussion on this diversity is not within the scope of this study.
Figure 1.2 exhibits rice consumption per capita in countries where rice
consumption is above 100 kg/person/year; and rice contributes about half of
calorie intakes. Vietnamese have the highest per capita consumption, followed
by Indonesia. In Vietnam, the survey by GSO (2010b) showed that while rice
consumption per capita has declined, and consumption of meat, fish, fruit and
food eaten away from home has increased. The survey also showed household
expenditure on rice declined by 9.6% and that on meat increased by 1.1%, that on
eating out increased by 6.1% from 2002 to 2010. The decreasing household
expenditure on rice is coupled with the decreasing share of rice in calorie intakes
in Vietnam (see Table 1.2). Unlike Vietnam and Indonesia, the Philippines and
Thailand experienced a fast growth in per capita rice consumption. Noticeably,
the Philippines is the only country that has experienced both an increase in rice
per capita consumption and an increase in rice contribution to calorie intakes.
Such increase is due to the continued low level of per capita income and the large
difference in food expenditure pattern between the rich and the poor. For lowincome families in the Philippines, rice is still the main source of energy
(Balisacan, Sombilla, & Dikitanan, 2010)
kg/person/year 160
140
120
100
80
60
40
20
Viet Nam
Indonesia
Thailand
Philippines
Asia
Figure 1.2: Rice consumption per capita in selected Asian countries (Source:
(FAOSTAT, 2013))
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Table 1.2: The contribution of rice to calorie intakes in key rice producing
countries (%)
Year
1990
1995
2000
2005
2009
China
33
29
28
27
26
India
35
32
31
31
29
Indonesia
55
51
52
49
48
Japan
24
23
22
22
21
Malaysia
31
29
29
26
25
Philippines
40
40
42
48
47
Republic of Korea
36
34
31
27
28
Thailand
50
43
43
42
46
Viet Nam
70
67
63
56
52
Source: (FAOSTAT, 2013)

Figure 1.3 displays a declining trend in per capita rice consumption in five
countries (South Korea, Japan, China, India and Malaysia) where rice per capita
consumption is below average amount among Asian countries
(80kg/person/year). Such declining trends in rice per capita consumption explain
the falling contribution of rice to calorie intakes in all five countries. Income
growth and urbanisation have contributed to the changes in food consumption
pattern. For example, in Korea, Rae & Bailey (1997) found that the share of
household expenditure on cereals which mainly comprise rice has dropped by 36%
while that on meals away from home increased by 28% from 1975 to 1995.
Increased affluence, increased urbanization, changing lifestyles and the
westernization of Korean were among the key drivers of changes in Korean food
consumption pattern (Rae & Bailey, 1997).
Kg/person/year 120
100
80
60
40
20
Republic of Korea
Malaysia
China
India
Japan
Asia
Figure 1.3: Rice consumption per capita in selected Asian countries (Source:
(FAOSTAT, 2013))
1.3.3. Major rice exporters

World rice exports increased nearly threefold during the period from 1990 to
2010. There was a major expansion in rice exports between 1990 and 2000 from
Asian region, particularly from the top five exporting countries: Thailand,
Vietnam, the US, India, and Pakistan (see Table 1.3). Altogether, the top five rice
exporters accounted for 75% of the world market share in the 1990s and 81% in
the 2000s. This reflects the high concentration of the world rice supply,
suggesting the world rice price is susceptible to these key rice exporters supply
abilities. Unlike China where most rice is consumed domestically, Thailand,
Vietnam and India export a significant share of their rice output. With regard to
Vietnam, its exports during the 2000s increased by 41% from 2,968 to 5,006 mm
tonnes. This increase helped Vietnam retain its share of the world rice exports.
As for India, it was the third largest rice exporter during the 1990s, but it was
overtaken by the US during the 2000s. Regarding other rice exporters, it is
noticeable that China and Australia no longer belonged to the top 10 rice
exporters in the 2000s. Chinas decline in rice exports resulted from its pursuit of
domestic price stability and food security (Chinas policies will be further
discussed in Chapter Two).
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Table 1.3 Major milled rice exporters from 1991 to 2010

1990-2000
Countries
Total
1990-2000
Average
quantity
(1000
tonnes)
19,277
Share
(%)
100.00
Countries
Total
Average
quantity
(1000
tonnes)
29,461
Share
(%)
100.00
Thailand
5,459
28.32
Thailand
8,631
29.30
Vietnam
2,720
14.11
Vietnam
4,872
16.54
United States
2,647
13.73
India
4,009
13.61
India
2,149
11.15
United States
3,293
11.18
Pakistan
1,589
8.25
Pakistan
2,811
9.54
China
1,520
7.88
China
1,213
4.12
Australia
553
2.87
Uruguay
767
2.60
Uruguay
511
2.65
Egypt
732
2.49
Argentina
369
1.91
Burma
530
1.80
10
EU-15
297
1.54
Argentina
409
1.39
11
Egypt
272
1.41
Cambodia
370
1.26
12
Burma
241
1.25
Brazil
336
1.14
13
Rest of the world
951
4.93
Rest of the world
1,487
5.05
1.3.4. Major rice importers

The two largest rice importing regions in the 2000s were Sub-Sahara Africa and
Southeast Asia. These regions accounted for nearly 80% of the worlds rice
imports in 2010, with Sub- Sahara Africa occupying the larger share. Nigeria
surpassed Indonesia to become the worlds largest rice importer with a share of
over 6% of global rice imports. It is projected that the Sub Sahara region will
remain the largest rice importer in the future (Wailes & Chavez, 2012). There are
three main reasons for an increase in Sub Saharas rice imports. Firstly, in the
Sub-Saharan region, rice consumption tends to increase, along with an increase
in urbanization. Secondly, consumers prefer imported rice to locally grown rice
because the former is of better quality. For example, imported rice was favoured
by Nigerian rice consumers in part because of its cleanliness, taste and grain
shape (Akpokodje, 2003). Thirdly, poor infrastructures in several Sub Saharan
countries hinder trade, thereby causing significant price differences within and
among different countries in the region. Imported rice is cheaper than domestic
10
rice in several countries. In Gambia, for example, in 2001 and 2004 the price of
imported rice was lower than local rice by 8% (Ministry of Agriculture, 2007).
Table 1.4 Major milled rice importers from 1991-2010
1990-2000
Countries
Total
2000-2011
Average
quantity
(1000
tonnes)
17,961
Share
(%)
Countries
100
Total
Average
quantity
(1000
tonnes)
27,580
Share
(%)
100
Indonesia
1,787
9.95
Nigeria
1,809
6.56
Iran
1,164
6.48
Philippines
1,682
6.10
Brazil
812
4.52
Indonesia
1,481
5.37
Saudi Arabia
757
4.21
European Union
1,294
4.69
Bangladesh
702
3.91
Iran
1,275
4.62
EU-15
628
3.50
Saudi Arabia
1,117
4.05
Philippines
619
3.45
Iraq
984
3.57
Nigeria
590
3.28
Bangladesh
860
3.12
Japan
544
3.03
Senegal
831
3.01
10
Iraq
529
2.94
Cote d'Ivoire
813
2.95
11
China
523
2.91
Malaysia
805
2.92
12
Malaysia
499
2.78
South Africa
769
2.79
13
Rest of the world
8,807
49.04
13,860
50.25
Rest of the world

South East Asia is also a key rice importing region. Among South East Asian
countries, Philippines, Indonesia and Malaysia are the main rice importers. In the
Philippines, its rice imports more than doubled during the1990s due to increased
rice consumption per capita; and domestic consumption grew faster than
domestic production. Indonesia is the worlds third largest rice producer as well
as the third largest rice importer. Indonesia has high level rice self -sufficiency as
their rice output could meet 99% domestic demand in 2007 due to a large support
for the rice industry from the Indonesian Government (Indonesias policies will
be further discussed in Chapter two). Compared to Indonesia, the Philippines and
Malaysias rice self-sufficiency were lower, namely around 70% (GTAP Data
Base, Version 8)
11
Examination of rice consumption trends in selected Southeast Asian countries

has implication for Vietnams rice exports. Southeast Asian is Vietnam keys
market to which more than half of Vietnams exported rice is consigned. In the
1999s, Indonesia was Vietnams largest rice importing partner. However, the
2000s witnessed the large share of Vietnams rice exports shifting from
Indonesia to the Philippines. Specifically, Vietnams rice exports to the
Philippines increased by more than 60% from 1999 to 2010. Wailes and Chavez
(2012) projected that under the this status quo by 2021 the Philippines will take
over Nigeria and Indonesia to be the worlds largest rice importer, with its share
of the world rice imports rising from 5.1% to 9%. On the export side, Vietnam
Thailand and India will continue to be the worlds leading rice exporters by 2021
(Wailes & Chavez, 2012). In India, although rice consumption per capita trends
downward, rapidly growing population requires more food supply. As such,
Indias share of world rice exports is projected to reduce from 22% to 20% by
2021. Due to Indias declined market share, Thailand will expand its world
market share from 24% in 2010 to 35%. Meanwhile, Vietnam will maintain its
world market share of 22% by 2021. Due to increasing import demand from the
Philippines, Vietnams rice exports are likely to increase if the Philippines
liberalized its rice trade. This study will focus on the extent to which the regional
trade liberalization affects Vietnams agricultural production, and trade with a
focus on the rice industry. While product differentiation and quality can be other
important factors in increasing exports to ASEAN market, it is not within the
scope of this study.
12
Chapter Two OVERVIEW OF PRODUCTION

SUPPORT AND TRADE POLICIES FOR
RICE IN SELECTED COUNTRIES
This chapter explores the production support and trade policies for rice that
ASEAN members, China and India, have employed. This chapter aims to explore
the influential factors of rice trade policies for ASEAN members. In addition, it
includes references to previous studies on the impacts of trade policies on each
country and the world rice market. This chapter could help with a further
understanding of the challenges that could face Vietnam when exporting rice to
its ASEAN partners.
2.1. Vietnam
2.1.1. Domestic support policies
Vietnam has initiated economic reforms since the early 1980s. However, the
reforms implemented in later years had the most significant impacts on
increasing its agricultural production, including rice. Figure 2.1 shows that,
during the late 1980s, rice production and rice exports in Vietnam increased
considerably. Rice paddy output increased by almost 80% and rice exports grew
more than 250% between 1987 and 2000. The annual production growth rate
during the 1990s was approximately 5%. This robust performance can be
attributed to several factors. Firstly, in 1988, under Resolution 10, rice farmers
were assigned long-term leases on their land 2. These rice farmers were also
allowed to own all their rice output and they were no longer required to sell their
Prior to 1988, local officials and agricultural officers were entitled to assign production land to farmers.
Farmers did not have a long-term right to their assigned land and therefore many farmers lacked the
incentive to increase their investment in the assigned land.
13
output to the state-trading agencies, at prices which were lower than the market
price 3. These farmers could, therefore, decide to market their rice to either
private traders or state-trading agencies. Another factor that contributed to the
increase in rice production was the governments decentralisation of input
supplies. Prior to 1986, the central government determined the crops for each
province and allocated inputs, such as fertilisers and seed, to each province. This
input allocation was not sufficient to meet requirements and resulted in high
competition for input access among production groups. Since the latter half of
1988, constraints on input supplies were relaxed, because provincial authorities
were allowed to handle input supplies, including imports of inputs to meet
provincial demand for production. However, according to Ordinance Number
193, issued on December 23, 1988, only state trading agencies were allowed to
import inputs. Furthermore, the government still strongly controlled the
allocation of foreign exchange.
In addition to the above reforms, rice farmers had more incentives for land
conservation and improvement, following the passing of the Land Law in 1993
which acknowledged five rights: exchange, transfer inheritance, lease and
mortgage. Furthermore, the expansion of rice production was attributed to the
governments increasing investment in irrigation and the adoption of new rice
varieties. Nguyen and Grote (2004) reported an increase in volume of the
Vietnamese governments total input subsidies from 1987 to 2002. Irrigation
Prior to 1988, under the contract system, farmers were obliged to sell contracted amounts of rice to the
government and only retain the excess. This contract system was displaced after 1988.
14
subsidies accounted for the main support, while other subsidies, such as
fertilisers and power, were provided occasionally.
30,000
1
0 25,000
0 20,000
0
15,000
5% annual growth rate

from 1980 to 2000
m
10,000
t
o 5,000
n
0
n
e
s
Production
Exports
Figure 2.1: Vietnam's rice production and exports since 1980 (Source:
(USDA, 2013)
Following the reforms of the late 1980s, further reforms on domestic trade and
border trade were implemented in the early 2000s, which had significant impacts
on increasing Vietnams rice production and exports 4. Although rice was mainly
exported by state-trading enterprises, the removal of both export quotas and
intra-trade restriction, after 2001, created incentives for both producers and
private exporting companies (Minot, 2000). Minot (2000) anticipated that
domestic paddy price would rise by 20% and exports by 51%, following the
removal of an export quota. In line with Minots finding, Nguyen and Grote
(2004) reported that those reforms, from 1986 to 2001,contributed to raising rice
farmers incomes in Vietnam.
4
Prior to 2001, a quota on rice exports was applied. In addition, there were restrictions on internal rice
trade, in part to control the smuggling of rice into China. Although Vietnam has had a sizable surplus in
rice since 1987, the government still controlled rice exports, due to its concern over the impacts of
external price shocks on low income consumers. Without any control, external price shocks were likely to
cause surging domestic prices. Given that rice accounted for a large share of food expenditure at that
time, an increase in the price of rice would have negatively affected the low income population.
Furthermore, without export quotas, food exporting companies could sell rice freely and this situation
made it difficult for the government to ensure sufficient rice supplies for regions which suffered a rice
shortage
15
Regarding the role of state trading enterprises (STEs) in supporting rice farmers
income, two STEs, the Vietnam Food Company 1 (VFA1) and Vietnam Food
Company 2 (VFA2), directed their members to purchase rice from farmers at
least at the minimum price set by the government. This operation was aimed at
preventing the farm gate price from dropping at peak harvest time. However,
only a small number of farmers can sell their paddy rice directly to the food
companies. Most rice farmers sell rice to small traders/collectors because they
do not have any means of transportation (Loc & Khoi, 2011). Therefore, the
farmers selling directly to the food company receive a higher price than those
farmers who have to sell to traders/collectors (Loc & Khoi, 2011).
State-trading enterprises also played a key role in assisting the government to

administer rice exports. Two state-owned trading companies, Vinafood 1 and
Vinafood 2, (both members of VFA), were entitled to negotiate contracts with
large rice importers and then allocate these contracts to other VFA members.
These two companies became involved in all government to government sales,
which accounted for a large share of total rice exports, namely 66.4% in 2007,
49.2% in 2008 and 42.7% in 2009, respectively (Loc & Khoi, 2011).
Such operations are used to ensure a reliable and continuous rice supply in large
quantities to key importers, which then protects Vietnams reputation. Vinafood
and other STEs hold an advantage over private trading companies, due to their
ability to gain access to preferential finance, in addition to having a larger storage
capacity and qualified human resources. Therefore, they are in a good position to
negotiate large transactions (Morrison & Sarris, 2007). However, there exists
criticism on the dominant roles of those two STEs in regards to the marketing of
rice. One reason for the criticism is that it makes several private food exporting
companies reliant on their allocation of rice exports, thereby only slowly
improving competitiveness in the marketing of rice.
16
2.1.2. Trade policy

Vietnams rice trade is managed by five government authorities. These include
the Prime Ministers Office, the Ministry of Industry and Trade (MOIT), the
Ministry of Agriculture and Rural Development (MARD), the Vietnam Food
Association (VFA) and the State Bank of Vietnam (Pham, 2010). Those
authorities undertook to set rice export quantities and rice trade policies. Rice
exports were no longer controlled through quotas. Instead, export companies
have to send their export contracts to VFA 5 for approval. This administration
enables the authorities to control rice exports, when necessary (Tsukada, 2011).
The current measures to administrate rice exports have an advantage over export
quotas, because they may enhance export companies competitiveness in finding
a market for their rice exports. However, those companies are likely to face risks
when the VFA ceases to approve export contracts. This could occur when the
total rice export target is reached prior to the latter quarters of a year.
The target for rice exports is set and announced annually by the Prime Minister.
However priority is given to food security and rice farmers welfare by the
Vietnamese Government 6 and therefore, national food security and rice price
stability has a great influence on the governments rice trade management
(Tsukada, 2011). Because rice accounts for a significant share of poor
households expenditure and calorie intake, a sudden spike in domestic rice price
as a result of an increase in the worlds price could reduce the poor households
food security. For these reasons, in response to the impacts of the food crisis on
domestic prices in 2007/2008, a ban on exports , together with an export tax,
export quota and minimum price for exports were adopted between 2007 and
2008 (see Figure 2.2). At that time, the VFA was instructed by the government
not to approve any new rice export contracts until the restriction on exports was
5
VFAs roles are to stand for the interests of VFA rice exporting members and provide its members with
market information. VFA also assists government to implement rice export policy (Tsukada, 2011)
The Vietnamese governments persistence on enhancing food security is stated in Resolution No.
63/NQ-CP dated 13/12/2009. This resolution focuses on ensuring food supply sources and also people's
access to food. For further details on the resolution see (Hai, 2012).
17
lifted. After 2008, those restriction measures were removed, but a minimum
export price has still been applied up to the present time.
Figure 2.2: Vietnam paddy rice price from 2006 -2009
Export ban
for the rest
of 2007
7000
6000
Lifted export ban
VND/kg
5000
4000
3000
Announced
export quota
2000
1000
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Sep-06
Nov-06
Jul-06
May-06
Mar-06
Jan-06
Source: (Clarete, 2012; USDA, 2013)

Applied
minimum
export price
(MEP: minimum export price)
2.2. Thailand
The highlight of Thailands domestic support policy is its pledging programme.
This programme was started in 1981/1982, in order to financially support rice
farmers to store their harvested rice. Under the pledging programme,
participating farmers receive a low interest loan from the Bank for Agriculture
and Agricultural Cooperatives (BAAC), if they pledge their stocks as collateral
for the loan 7. The borrowers have to repay the loan at the pledging price plus
Farmers who do not have warehouse can bring their stock to a central warehouse under the deposit
slip/paddy pledging schemes. The Public Warehouse (PWO) and the Farmer Central Market Organization
(FCMO) are in charge of the warehouse deposit slip/paddy pledging schemes. Farmers who have their
own warehouse can keep their stock in their own facility (named barn-house pledging). Before the loan
due date, farmers can decide to forfeit or redeem their pledged stock. This decision is made on the
18
interest, if market prices are above the pledging price. In the reverse case, the
borrowers are exempt from paying the loan interest. This pledging price is to
help farmers avoid loss when a large fall in market price could reduce largely
rice farmers incomes. It also enables the farmers to gain access to low interest
finance for their rice storage. The cost of this programme, including the loss
incurred to BAAC, is covered by the governments budget.
Table 2.1: Comparison between average farm gate price and pledging price of
white rice paddy in Thailand* (main crop)
Year
2002/03
2003/04
2004/05
2005/06
2006/2007
2007/08
2008/09
2011/12
Pledging
price
(Baht/ton)
47605330
47605330
62006600
67007100
5900-6500
61006700
1080012000
1380015000
Average
farm gate
price
(Baht/ton)
5048
5222
6495
6672
6442
8676
9816
10063
Note: * is processed into Thai white rice 5% broken. Data for 2009-2011 is not included because pledging
programme was suspended during this period and an insurance programme was adopted instead.
Source: Wade & Prasertsri (2012, p. 11)

Since the 2001/2002 crop, the objective of the programme was changed towards
price support and farmer income support (Poapongsakorn, 2010). In particular,
the Thai government has set their pledging price higher than the market price
since 2008/2009 (see Table 2.1). The proportion of pledged rice was estimated at
31.5 percent of the 2011/12 main-crop production (21-22 million tons of paddies).
The pledging programme has been criticised for at least two reasons. Firstly,
Poapongsakorn (2010) argued that the high pledging price was motivated by
some Thai politicians interest in increasing rents for some groups of
beneficiaries, and also to help those politicians win re-election. Secondly, the
programme requires a high cost, but it generates unfair benefit distribution. In
fact, in 2008, only 4.5% of the programme benefits accrued to the poorest rice
difference between the market price and the pledging price, which is set by the government. If farmers
decide to forfeit their crop, the government pays BAAC the interest. Otherwise, farmers pay BAAC 3%
and the government pays the remainder of the relevant costs.
19
farm households. In contrast, more than a third of the programme benefits were
distributed to 20% of the richest rice households. Furthermore, high pledging
prices have significant impacts on the domestic farm gate price and export price.
Due to high purchase prices, Thai rice exporters have to sell their rice at high
prices on the international market. This makes Thai rice price less competitive, in
comparison with India and Vietnams equivalent rice types. Thailands market
share declined in 2001/2012, and Vietnam and India could make use of this
opportunity to increase their export shares.
2.2.2. Trade policy

To protect rice farmers, in addition to the policies as mentioned above, Thailand
restricts the amount of rice imports with a tariff rate quota. The inquota tariff is
30% and the out quota tariff is 50% for all WTO members. However, for specific
ASEAN member partners, the duty rate is 5% under the Common Effective
Preferential Tariff (CEPT). This quota is managed by the Department of Foreign
Trade (DFT). Thai importers are required to hold import licenses for rice
imports (WTO, 2010c). Given Thailand is the world largest rice exporter,
according to Warr (2008), the import restriction are due to two reasons. Rice
trade liberalization could reduce incomes of the rice producer due to a fall in
producer price. Rice imports, especially from Vietnam could highly substitute
with some Thai rice because rice is in fact highly differentiated by types, and
Thai rice producers have high efficiency in some types of rice production, but not
all. This substitution effect, in turn, could have negative impacts on the Thai rice
producers, thus leading to political consequences.
In regards to export subsidies, Thailand did not make a commitment on export
subsidies in URAA. Thailand has not subsidized its rice exporters.
20
2.3. Indonesia
2.3.1. Production and income support
policies
In order to increase rice self-sufficiency, the Indonesian government provides
several supports for rice producers. These supports include the provision of a
fertilizer subsidy and free high quality seeds to eligible farmers 8. In addition, its
Food Logistics Agency, Badan Urusan Logistik (BULOG) procures the rice
surplus from domestic rice producers for no lower than the minimum
procurement price, thus ensuring that the domestic price does not drop too low
during peak harvest time.
In order to reduce the effect of high prices of rice on poor consumers, the
government introduced the RASKIN programme with the purpose of providing
rice to poor households at subsidised prices. In 2013, the Indonesia Ministry of
Social Affairs is in charge of the programmes budget and BULOG is in charge
of distributing rice to targeted households. Each eligible household receives 15kg
of rice/month at Rp 1,600/kg in 2011/2012 9 (Voboril & Meylinah, 2013).
2.3.2. Trade policy

Rice is among a few commodities which are highly protected in Indonesia.
Indonesia employs quantitative restrictions and a state-owned trading enterprise
for its rice imports. BULOG used to be granted a monopoly over international
trade in rice. According to WTO (2013b, p. 64), however, this monopoly has
recently been removed. However, rice is still primarily imported by BULOG.
Indonesias private enterprises are allowed to import rice, but they are required to
have a license. Therefore, only approximately 1% of domestic rice consumption
8
Farmers who want to receive high quality seed must meet certain criteria set by the government. Local
government selects eligible farmers through proposals from farmer associations. The local government is
also responsible for ensuring seed effectively reaches those farmers. The seed is supplied by PT Sang
Hyang Seri and PT Pertani and distributed to the farmers paddy fields (Saifullah, 2010)
Further information on this programme can be found on the BULOG website:

(http://www.bulog.co.id/eng/glance_v2.php)
21
is imported by private companies (2010). In regards to the tariff rate on rice

imports, Indonesia charges the same tariff rate, i.e. Rp450/kg, on rice imports
from all sources.
There are several explanations for Indonesias restrictive trade policy on rice.
Firstly, together with producer support, their rice trade policy assists in
enhancing rice self-sufficiency in Indonesia. Figure 2.3 shows that the gap
production and consumption narrowed between 2004 and 2008. Rice production
fell between 2007and 2008, but recovered in 2010. Indonesia used to be the
worlds largest rice importer until the early 2000s. Due to an increase in rice
production, Indonesia has increased its self-sufficiency and it has not been the
worlds largest rice importer since the mid-2000s.
The second explanation could be the governments control on rice trade in

support of its price stabilisation objectives. Dawe & Timmer (2012) discuss that
rice is procured from farmers at the incentive price and is resold to targeted
consumers at a subsidised price. This practice entails a fiscal cost burden.
Despite this cost, Dawe and Timmer (2012) believe that the benefits of price rice
stabilisation for poor consumers, producers and macroeconomics could exceed
the cost. In the case of consumer benefits from rice price stabilisation, these
authors use an example of a study by Steven et al. (2004) that, in response to an
increase in rice prices in the late 1990s in rural Central Java, Indonesia, mothers
in poor families reduced their caloric intake to better feed their young children.
Based on this result, these authors believe that a reduction in calorie intakes as a
result of an increase in rice price, even if it occurs only temporarily, could have a
permanent impact on pregnant woman and children. In regards to the role of rice
price stabilisation in relation to macroeconomic stability, Dawe and Timmer
(2012) present three supporting arguments, one of which is that, given the
demand for rice is inelastic, in response to an increase in rice price (as a
consequence of bad harvest ), households did not reduce their budget for rice, but
instead they reduced their budget for some other goods. This situation could
cause prices and quantities in the affected industries to fall, due to a fall in
22
household demand for these goods. However, this argument seems to contradict
the authors previous study in 2008, in which Dawe (2008) stated that the role of
rice price stabilization, in relation to macroeconomics, is less significant today
than it was in the 1970s. There are two reasons for these changes. Firstly, due to
a substantial increase in export earnings, Indonesia nowadays can afford to
import a large quantity of rice in the event of domestic shortfalls. Indonesia can
also afford to purchase a large share of its domestic rice consumption from the
world market. Secondly, rice used to account for a large share of household
expenditure. However, this share has declined as Indonesian household incomes
improved.
45,000
14,000
Production and consumption (1000 ton)
40,000
12,000
35,000
10,000 H
30,000
a
8,000
(
25,000
1
6,000 0
0
4,000 0
20,000
15,000
10,000
2,000
5,000
Milled Production (1000 MT)
Consumption and Residual (1000 MT)
Area Harvested (1000 HA)
TY Imports (1000 MT)
Figure 2.3: Indonesias rice producti on, consumption and area. Source:(USDA, 2013)
In a study on the impacts of rice trade policy on poverty reduction, Warr (2005)
found that the governments restriction on rice imports had adverse impacts on
poor consumers, because it raised the domestic price and limited their access to a
cheaper supply of rice. Therefore, the removal of import restrictions was likely to
reduce poverty in Indonesia. Similarly, a recent study by Sayaka, Sumaryanto,
23
Croppenstedt and DiGiuseppe (2007), also found that the removal of rice tariffs
reduces the price of rice paid by Indonesian consumers and it also increased crop
diversification. Despite the potential benefits of rice trade liberalisation, future
rice trade liberalisation has hardly occurred, because rice is a highly sensitive
political commodity. Fane and Warr (2009, p. 194) explained that the rice
millers have considerable political influence on policy makers in Indonesia.
Protection for the rice farmers has been increased due to this political power and
the economic nationalism that dominates among members of parliament.
2.4. The Philippines

Rice is the key agricultural crop in the Philippines because it significantly
contributes to the income of millions of Filipino farmers (Cororaton & Cockburn,
2006). Moreover, rice is important because it accounts for a large share of
household food expenditure (Cororaton, 2006) and it also supplies more than half
the calorie intake for a significant share of the Filipino population (discussed in
Chapter I). Therefore, food security in the Philippines is closely associated with
rice self-sufficiency.

In order to encourage domestic rice production, the National Food Authority
(NFA) runs several income supporting programmes. One of NFAs key
programmes is to procure paddy rice from small-scale farmers at a subsidised
price. NFA also runs several indirect market intervention programmes, such as
the Farmers' Incentive Rice (FAIR) Purchase Program, in order to encourage
farmers to sell rice to NFA. Under FAIR, farmers are allowed to buy back rice
that is already sold to NFA within six months from the date of sale. This buyback
is allowed when the market price is higher than the price that NFA previously
paid to purchase rice from the farmers. This operation occurs in order to help
maximise farmers profit.
24
In addition to supporting rice farmers, NFA is also in charge of distributing rice,

at an affordable price, to consumers in strategic locations under the Targeted
Rice Distribution Programme (TRDP). It is clear that, in order to support both
farmers and rice consumers, NFA requires a high budget for its mission.
However, budget constraints and a lack of financial resources have hindered
NFA from expanding its programmes in recent years (Balisacan et al., 2010)
In response to the food crisis in 2007/2008, the government launched its

programme, FIELDS, in 2008, which aimed to achieve higher food selfsufficiency by 2013. Under this programme, additional funds are provided for a
fertiliser and micronutrient subsidy; investment in irrigation; infrastructure and
education; agricultural credit; and a seed subsidy. However, Balisacan et al
(2010) point out that the programme faces several challenges, such as deficient
coordination among the agencies involved in the programme, and a lack of
control on seed quality.
2.4.2. Trade policy

The Philippines was granted special treatment under the Uruguay Round
Agreement on Agriculture. Following this special treatment, the Philippines have
employed a tariff rate quota for rice. The minimum access quota was reported at
350,000 tonnes in 2006. This quota has been maintained until June 2012. Rice
imports from ASEAN members have been subject to a tariff of 40%. In addition
to a high rice tariff, The Philippines impose strict restriction on the importation
of rice. According to WTO, The NFA has control over imports of rice: it has the
authority to import rice itself or to allocate import quotas to licensed importers
(i.e. Filipino farmers, cooperatives, or private grains businesses). All out-ofquota rice is imported by the NFA directly (WTO, 2012, p. 68)
The Philippines has experienced rice insufficiency which has become worse
since the early 2000s, because demand for rice has grown greater than the supply
of rice. Rice consumption rose by 5%, in comparison to a 3% increase in rice
production (compound annual growth rate) in the 2000s (see Figure 2.4).
25
Government control of rice imports is for the purpose of enhancing rice selfsufficiency and price stability (Kajisa & Akiyama, 2005) . However, such
policies are confronted by several critics for a number of reasons 10, since it
results in a high consumer price and therefore reduces the welfare of rice
consumers (Kajisa & Akiyama, 2005) . Consistently, in a study on the impacts of
the import quota, Cororaton and Cockburn (2006) reported that the removal of
the import quota would result in a decline in the consumer price. The benefit
from quota elimination outweighs the negative impacts of a surge in rice imports.
These authors also find that the removal of an import quota on rice also helps to
reduce poverty in the Philippines. In a discussion on an improvement in food
security, Kajisa and Akiyama (2005) also suggest that rice trade liberalisation
could be a potential approach to achieve food security in the Philippines.
However, despite the potential benefits from rice trade liberalization. David et al.
(2009) states that rice trade liberalisation is unlikely to occur in the Philippines.
The Filipino Government persistently pursue to increase rice self-sufficiency
strategy and reduce its reliance on international markets, following its experience
16,000
5,000
14,000
4,500
4,000
12,000
3,500
10,000
3,000
8,000
2,500
6,000
2,000
1,500
4,000
1,000
2,000
500
0
97/98
99/00
01/02
03/04
05/06
07/08
09/10
11/12
Figure 2.4: The Philippines rice production, consumption and area

(Source:(USDA, 2013))
10
Kajisa & Akiyama (2005) point out that NFA was assigned to rice price stabilisation in the Philippines.
However, its operation in this matter is inefficient and unsatisfactory, due to an unstable rice prices in the
Philippines.
26
Harvested area (1000ha)
Production and consumption (1000 ton)
in the food crisis in 2007.
2.5. Malaysia 11
2.5.1. Production support and income support policies
In pursuit of higher rice self-sufficiency, the government strongly supports rice
farmers and provides them with a wide range of incentives to maintain rice
production. The key policy to support rice farmers is a guaranteed minimum
price (GMP). If the market price falls below GMP, a new public limited
Company, Padiberas Nasional Berhad (BERNAS), is in charge of purchasing rice
from farmers at no less than GMP price. Paddy rice farmers are also supported
through a fixed payment. This payment is based on the amount of paddy rice
farmers sell to registered rice mills. In 2010, the payment was approximately
RM 24.81 per 100 kg (WTO, 2010a). In order to reduce the impact of a high
domestic price for rice on low income consumers, the government controls the
price of low quality rice. For example, the price of ST15 is kept at RM 1.65/kg
for Peninsular Malaysia and RM 1.80/kg for Sabah and Sarawak.
2.5.2. Trade policy

Rice is exclusively imported into Malaysia by BERNAS. BERNAS operates a
transparent purchasing system with an open tendering procedure. However, by
holding a monopoly on rice imports, BERNAS has an advantage when
negotiating a rice price with its suppliers, since it is the only rice importer (WTO,
2010a). The tariff on rice imports from ASEAN member is currently at 20%.
11
This section is mainly based on a WTO trade policy review report provided by WTO (2010a)
27
Rice accounted for a much smaller share of private household consumption in

Malaysia than in Indonesia, the Philippines and Vietnam, namely 0.9%, 3.8%, 4%
and 5%, respectively (GTAP Database, Version 8)). However, rice remains
protected in Malaysia. In a study evaluating the distortions in Malaysian
agriculture, Athukorala and Loke (2009) found that rice shows a major distortion,
in regards to agricultural incentives in the country. This situation occurs because
rice is a highly sensitive political crop. Athukorala and Loke (2009, p. 203)
explain that Rice farming, nearly all wet paddy farming, is the major source of
income for rural households in the states of the north and east in Peninsular
Malaysia and parts of East Malaysia. At independence, about three-quarters of
the native peasant producers (predominantly rice growers and fishermen) were
Malays; about 90% of the rice growers were Malays; and about one-third of the
economically active Malay male population represented the peasant sector.
Given that rice is the major cause of agricultural distortion in Malaysia, these
authors hypothesise that this distortion could result in a welfare loss for
Malaysian consumers; and also constrain resources from being employed in more
efficient and dynamic production, such as processed foods. As such, these
authors question whether Malaysias rice trade liberalisation could result in better
resource allocation?
28
2.6. China12
The Chinese government places a strong emphasis on grain self-sufficiency, as a
result of the food crisis in 2007/2008, world food price volatility, and Chinas
growing demand for food to feed its huge population. A summary of Chinas
spending on support programmes for grain is given in Table 2.2.
Table 2.2: Chinese government spending on subsidy programmes for grains*
from 2005 2006 (US$Million)
Years
Direct
payment
2009
Seed
Subsidy
Machinery
Subsidy
Fuel/Fertilizer
Subsidy
Na
1,471
10,529
588
9,382
294
4,059
88
1,838
44
2,221
2008
2,221
1,775
2007
2,221
979
2006
2,088
603
2005
1,941
574
Others
Total
3,426
17,647
1,160
15,126
7,553
4,618
2,559
Source: Sanchez and Junyang (2009, p. 10)

Note: * Grains include rice, wheat and maize
The 2007, 2008 seed subsidy covers soy bean, rice, wheat, corn, rapeseed and cotton. Exchange
rate 1USD = 6.7RMB
As shown in Table 6, total spending on direct payment and input subsidies

increased by approximately seven times, between 2005 and 2009. Fuel and
fertiliser subsidies account for the largest share of total subsidies. The budget for
these subsidies in 2009 is almost double that in 2007. Direct payment is another
important support, which was started in 2002 in Anhui, Henan and Jilin
provinces. This support has been provided nationwide since 2004 (Fang, 2010).
Direct payments did not increase as fast as fuel and fertiliser subsidies. Overall,
these subsidies contributed approximately 22 percent of net profit margins for
grain farmers in regards to the 2008/2009 crop (Sanchez & Junyang, 2009).
12
It is helpful to include China and Indias policies in this chapter, because these countries are the worlds
largest rice producing and consuming countries,: and India is a key rice exporter. As such, changes in
their policies have a significant impact on the world rice market.
29
In addition to the subsidies discussed above, China introduced a minimum

procurement price scheme for rice in 2004. This scheme was notified to the
WTO as an Amber Box measure that could boost production and cause trade
distortion. Under the scheme, the government purchases grain from farmers in 13
major grain-producing provinces and regions, when the market price falls below
the minimum price (Xinhua, 2013). Recently, there has been a significant
increase in the minimum price set by government (Sanchez & Junyang, 2009)).
In 2013, the Chinese government announced that the minimum price would be
set at 2,640 yuan ($420) (Xinhua, 2013), a 10% increase relative to the 2012
relevant price. In addition to these support policies, the Chinese government lays
emphasis on improving productivity in grains. For details on these measures, see
Beckman (2010). Overall, these policies are contributing to Chinas grain selfsufficiency 13 (Sanchez & Junyang, 2009). Rice production has recovered from its
decline at the beginning of the 2000s and it has risen steadily over the last few
years (see Figure 2.5)
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
2011/2012
2012/2013
Figure 2.5: Chinas rice consumption and production from 1985 to 2013 (Source:
(USDA, 2013))
13
The target is 95%
30
2.6.2. Trade policy

2.6.2.1. Importation of rice
China has adopted a tariff rate quota on rice imports since its accession to the
WTO. This quota was set at 2.66mmt in 2001 and then increased to 5.32 mmt in
2004. This quota has not been changed since 2004. However, actual imports were
far below the quota. The in-quota tariff is 1%, while the out-quota tariff is is 65%.
The imported quota of 5.32mmt is equally allocated to state trading enterprise
and private enterprise (Riedel, Lagos, & Junyang, 2013).
2.6.2.2. Exportation of grain 14

The Chinese government also imposes export quotas on rice, wheat and maize.
Exports of rice, maize and soybeans are controlled through state-trading
enterprises. In addition, the export of grains has been subject to export license
management since 2008. The government also removed VAT rebates on cereal
exports 15. As a result of strict regulation on exports, China exhibits a declining
trend in rice exports (see Figure 2.6).
4000
3000
1
2000
0
0
0
1000
T
o -1000
n
-2000
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
2011/2012
2012/2013
-3000
Figure 2.6: Chinas net rice trade* from 1985 to 2012 (Source: (USDA, 2013))
Note: *Net trade = exports - imports
14
Based on (Fang, 2010)

Exports of grain were entitled to a 13% rebate of their declared export value at the port, before 20
December 2007 (Fang, 2010)
15
31
2.7. India
Rice is a strategic sector in India and it accounted for up to 42% of total food
grain production in 2007-2008 (Gulati & Dutta, 2010). Indian rice production is
rising faster than its domestic demand and therefore, this enables India to export
rice occasionally (see Figure 2.7). This increase in rice production can be
1
0
0
0
t
o
n
120,000
46,000
100,000
44,000
80,000
42,000
60,000
40,000
40,000
38,000
20,000
36,000
34,000
Figure 2.7: Indias rice production and consumption since 1985 (Source: (USDA,
2013))
2.7.1. Farmer and consumer support policies

In order to support rice farmers, the Indian government has implemented several
policy measures that include both input and output support. The most common
form of input support is fertiliser and electricity subsidies. Fertiliser accounted
for the largest share of total input subsidies (40%), followed by electricity (26%)
and irrigation (21%) in 2007. Gulati and Gupta (2007) found that the rice
industry received the highest share (37%) of total subsidies for fertiliser and
electricity in India, followed by the wheat industry (35%).
In addition to input supports, the Indian government supports grain farmers

incomes through output price support. Paddy rice is purchased from farmers at
the minimum support price (MSP). Rice procurement is organised by the
32
1 000 ha
attributed partly to large subsidies from the Indian government.
government through public and cooperative agencies. The Food Corporation of

India (FCI) is responsible for food grain procurement, distribution and storage.
The proportion of rice procured by FCI rose from 25.5% in 2003/2004 crop, to
41% in 2005/2006 crop. Rice can also be procured and distributed by the state
governments under a decentralised procurement scheme. This scheme aims to
benefit more farmers, in disadvantaged rural areas, from the minimum support
price. Overall, these measures contribute to enhanced rice production, and it has
enabled India to have a high level of rice surplus since 2008.
FCI plays a central role in enabling the Indian government to support rice
farmers and to assist the targeting of poor consumers. Government policies to
maintain a high domestic price of rice could benefit rice farmers at the expense
of the consumers, especially those with low incomes. In order to mitigate the
impacts of high rice prices on Indias poor consumers, some of the rice procured
by FCI is sold to low income Indian consumers at a subsidised price, under a
public distribution system (PDS). In addition, the rice procured by FCI is used to
support the targeted poor population through the Targeted Public Distribution
System (TPDS) 16. FCI is also responsible for maintaining a sufficient buffer
stock 17 which is used in emergency cases, such as crop failures, drought, or flood.
FCI is also granted with special privileges to control the rice trade in India. FCIs
role to control the rice trade is discussed in the following section.
2.7.2. Trade policy

Restrictive marketing and trade policies are applied to rice and wheat in India
(Daws, Block, Gulati, Huang, & Ito, 2010). In the case of domestic trade policies,
intra-state and inter-state trade of paddy rice is restricted, thus enabling
government agencies to purchase sufficient rice for its procurement scheme. Rice
millers have to sell a certain proportion of their milled rice to government
16
The programme focuses on helping the most vulnerable people in India to obtain food grains at a low
price below market price.
17
which is used to support domestic consumers in case of crop failures, drought, or flood
33
agencies. FCI relies on these millers to purchase approximately half of their

targeted rice procurement (Gulati & Dutta, 2010). The obligation of the rice
millers to sell milled rice to FCI is set by the government and it varies from state
to state.
Rice is considered to be a sensitive good in India, due to its important role in

food security. Therefore, exports of rice have been subject to restrictions and
quotas which are notified yearly. However, restrictions on rice exports could be
changed abruptly, in order to ensure food security. Licenses for rice exports and a
minimum export price are also applied in order to administrate prices and rice
availability. Rice imports have been subject to a tariff rate of 80% (HS 1006.40),
except for rice imports from Sri Lanka. This high tariff makes imported rice very
expensive and Indias imports of rice are managed via state-trading. Due to these
measures on rice imports, there has not been any rice imported into India since
the early 1990s (see Figure 2.8).
The unpredictability in Indias rice exporting policy was observed to transmit

instability into the world rice price during the global food crisis in 2007/2008.
India introduced a ban on rice exports from October 2007 until September 2011
(Clarete, 2012), in spite of an increase in rice production at that time. This export
ban was explained by the concern that an increase in the world rice price could
have an adverse impact on Indias food security. This export ban in turn was
responsible for a surge in the world price of rice. Derek (2011) estimated that key
rice exporters, including India and Vietnam, contributed 60.9% to the surge in
the world price during the rice crisis in 2007/2008.
34
12000
10000
1
0
0
0
M
T
8000
6000
Trade
4000
TY Exports (1000 MT)

2000
2013/2014
2011/2012
2009/2010
2007/2008
2005/2006
2003/2004
2001/2002
1999/2000
1997/1998
1995/1996
1993/1994
1991/1992
1989/1990
1987/1988
-2000
1985/1986
Figure 2.8: Indias net rice trade since 1985 (Source: (USDA, 2013)
2.8. Conclusion
The above sections present a brief discussion on the rice trade policies of
ASEAN members, China and India. In order to compare the level of support in
these countries and to further understand supporting trends over a period of time,
this study employed a nominal rate of assistance ratio (NRA), which is an
outcome of a global research on agricultural distortions led by Anderson and
Martin (2009). This ratio is defined as the percentage by which government
policies have raised (or lowered if the NRA is less than 0) the gross returns to
producers above (or below) the gross returns they would have received without
government intervention (2009, p. 17)
Table 2.3 presents the nominal rate of assistance for selected Asian countries.
Rice farmers in Japan and Korea receive a higher level of income support from
their governments policies, than their counterparts. The support level in these
two developed countries far exceeds the remaining countries. In the 1990s,
policies in Japan, Korea and Malaysia were aimed at increasing their rice farmers
incomes, while the reverse was seen in Vietnam and some Asian countries.
However, the 2000s witnessed a reverse trend, when Japan, Korea and Malaysia
reduced their support and Thailand, China, Vietnam, Indonesia and India
increased their support. As a result, NRA in these three latter countries has risen
35
since 2000. Among ASEAN members, Thailand differs from the remaining
members in that its NRA shows decreasing negative value, suggesting that rice
production has been taxed but that taxation has reduced over the period from
1990 to 2007 (Anderson & Martin, 2009; Warr, 2008)
Table 2.3: Nominal rate of assistance for selected Asian countries
Country/Region
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
Japan
518
758
597
597
624
629
588
521
318
249
Korea
276
340
390
374
422
395
350
226
205
210
Malaysia
123
117
54
89
82
65
65
Vietnam
-37
-8
19
35
34
22
India
-18
-9
15
18
29
19
22
16
55
73
69
54
41
17
Indonesia
-10
-12
15
21
23
25
China
-36
-2
-8
-6
-15
-2
Thailand
-14
-10
-13
-9
-6
-3
-6
Philippines
-12
Source: Anderson & Martin (2009)

Further examination of Vietnams NRA shows that, in the 1990s, the price of rice
was kept lower, relative to the border price, as a result of administered prices and
the governments restriction on rice exports. Following the economic reforms
since 1986, the government relaxed its control and allowed the market to decide
the price. Nevertheless, an export quota was employed until 2001. Then, in 2001,
the export quota was removed along with the gradual reduction of the statetrading monopoly on rice trade. These changes contributed to a rise in the
domestic market price. At the same time, policies put in place to curb high
inflation and eliminate the dual exchange rate became effective. Taken together,
these policies contributed to a rise in NRA. Despite an improvement (reduction)
in NRA lately, the level of support that Vietnamese rice farmers receive is very
modest compared to that in some other countries, such as Malaysia.
36
Chapter Three LITERATURE REVIEW

3.1. Regional trade agreements
3.1.1. Theory of preferential trade
agreements
The difference between trade liberalisation and preferential free trade theory is
that the latter might cause trade diversion or trade creation. Trade creation and
trade diversion were first introduced by Viner (1950) 18. Trade diversion refers to
a shift of imports from efficient suppliers to less efficient suppliers. This shift is
due to the cheaper price of imports, as a result of tariff removal among custom
union members (CU). Trade creation refers to increased imports from efficient
suppliers, in addition to CU members. A CU member can have a welfare
gain/loss, if a trade creation/trade diversion outweighs a trade diversion/trade
creation. Viners conceptual framework for preferential free trade theory has
been acknowledged. However, trade creation and trade diversion are insufficient
to explain the change in a CU welfare.
Bhagwati (1971), Lipse (1957) and Meade (1955) found that a CU could have a
welfare gain, although it experienced trade diversion. If the new price faced by
union consumers became cheaper than the pre-union price, it could lead to
increased imports and the generation of a consumer surplus. The consumer
benefit would be greater than the loss of tariff revenue, thus resulting in a welfare
improvement for the trade-diverting CU.
Furthermore, a welfare change would result not only from a trade volume change
but also from a price change. In the case of a large CU, Mundell (1964) stated
that a CUs joint welfare could be positive, due to the improved terms of trade,
even though the CU formation entailed trade diversion. However, the gain would
be unequally distributed between the CU members. In the case of a small CU of
18
Viner illustrates trade diversion and trade creation through a model in which there are only three
countries in the world. Two countries form a custom union and the third country represents for the
remainder of the world.
37
two members, Panagariya (2000) demonstrated that a CU could cause a loss of

tariff revenue for the member who diverted its imports from the rest of the world
to its CU partner. Therefore, Panagariya (2000, p. 301) stated that The more the
country imports from the partner and the greater the magnitude of tariff
preference, the more it loses. This assertion is based on two assumptions. Firstly,
the country with the higher tariff continues to import goods from the rest of the
world. Such goods were initially imported from the world. Secondly, the import
price was determined by the rest of the world. If these assumptions were altered,
the CU member could gain (Panagariya, 2000). If the CU partner were assumed
to be the sole supplier of the imported commodity, the other CU member could
gain, because it paid a lower imported price relative to the pre-CU price. Even if
trade diversion occurs after CU formation, the smaller the gap between the world
price and the new CU price: the lesser loss experienced by the CU member.
Panagariyas inconclusive assertion is challenged by many questions. A survey

conducted by Robinson and Thierfelder (2002) shows that the welfare of most
RTA members was improved and that trade creation outweighed trade diversion
in most empirical studies. This survey included several studies on the static
impact of North American Free Trade Agreements (NAFTA), the EU and
MERCOSUR on RTA members.
3.1.2. Empirical studies on the impacts of

AFTA on Vietnam
In an earlier study of Vietnams accession into ASEAN, Fukase and Martin
(2001) used the above mentioned theoretical framework and earlier data, and
found AFTA had small economic impacts on Vietnam for two reasons. Firstly,
Vietnams access into the ASEAN market would not be improved remarkably,
because Singapore accounted for a significant share of Vietnams exports to
ASEAN. However, Singapore already applied a very low tariff. Secondly, AFTA
would create trade among members, but the trade creation was outweighed by the
38
trade diversion. This study did not give attention to the impacts of AFTA on
Vietnams rice trade with AFTA members.
Abbott, Bentzen and Tarp (2010) presented a different view on the impacts of
AFTA on Vietnams trade with ASEAN members. Through their review of trade
statistics from 1986 to 2004, Abbott, Bentzen, and Tarp (2009) point out that
Vietnams exports to some ASEAN countries surged remarkably, two years after
Vietnams accession into ASEAN. Similarly, Toh Mun and Gayathri (2004)
expressed positive views on the economic impacts of AFTA on Vietnam. These
authors employed a GTAP model in order to study the economic impacts of
AFTA on Vietnam. They provided positive results: Vietnams total exports and
imports increased by 4.5% and 7%, respectively; and Vietnams welfare
increased as a result of Vietnams accession into AFTA. This gain came solely
from the improved terms of trade.
3.1.3. Trade creation/diversion of AFTA

Trade creation and trade diversion are widely considered to be a key aspect of
RTA analysis. In regards to AFTA, there exists an inconclusive debate on its
trade creation and diversion. Employing an earlier GTAP database, Fukase and
Martin (2001), Toh Mun and Gayathri (2004) anticipated that the formation of
AFTA led to trade diversion. However, a study by Elliott and Ikemoto (2004)
provided evidence in support of AFTA leading to trade creation, but the degree
of trade creation was lower during the period 1993 to 1997, than in the
preceding period 1988 to 1992 19. Similarly, later studies by Korinek and Melatos
(2009) supported intra-ASEAN trade creation in agriculture. One possible
explanation for the differences among these studies is that trade flows among
ASEAN members have increased and the trade patterns of ASEAN members, as
a group, have changed from 1997 through to 2007 (Abbott et al., 2009). Table
3.1 presents further details of the studies on the impacts of regional trade
agreements on ASEAN members. Apart from three studies mentioned above,
19
Due to rising competition for market share from China, South American and Eastern Europe.
39
either analysis of trade creation/diversion or Vietnams participation into AFTA

were not included in most of the other studies.
Table 3.1: Selected studies on the static analysis of AFTA on ASEAN members
Authors
(Strutt et
al., 2010)
Model, data, results and discussion

Research aim: To study the economic impact of RTAs on poverty
reduction in ASEAN new members, i.e. Vietnam, Lao, Myanmar
and Cambodia.
Model: GTAP (modified closure)
Data: GTAP Database version 7 + household survey data from four
countries of interest.
Scenario: ASEAN members eliminate all intra-ASEAN tariffs.
Results:
-
Tariff elimination would make a contribution to poverty

reduction and bring about significant gains for new ASEAN
members.
Tariff removal would have minimal impacts on Vietnams

crop output and processed food. The output of crop and
processed food would increase by 0.7% and 0.3%,
respectively.
40
(Korinek
Research aim: The impacts of AFTA on ASEANs agricultural
&
trade
Melatos,
Model: GRAVITY model. Dependent variable: bilateral trade
2009)
flows. Explanatory variables: incomes, distance, culture and dummy

variables (which represent past trade flow).
Data: A panel dataset comprised of annual bilateral data for 55 (3digit SITC) products, including all agricultural products for the
period 1981 to 2006.
Scenario: Six ASEAN members fully complete CEPT commitments
from 2002 2004, while four new members partially complete their
commitments.
Results: AFTA has contributed to agricultural trade among its
members
Trade creation is significantly positive for AFTA members.
(Siah,
Research aim: Examine the contribution of AFTA on enhancing
Choong,
intra-trade among five ASEAN members, Thailand, Singapore,
& Yusop,
Indonesia, the Philippines and Malaysia.
2009)
Model: A modified gravity model is estimated within an
autoregressive distributed lag (ARDL) framework.
Data:
1970 -2001
Results: The formation of AFTA is found to play an important and

prevalent role in increasing intra-trade among five ASEAN
members. However, such an increase in intra-trade might not benefit
these five countries as a group, due to the occurrence of trade
deflection.
41
Research aim: The impacts of regional economic integration on

(T. D.
Vietnams growth, poverty and income distribution.
Nguyen
Model: GTAP (modified closure)
& Ezaki,
Data: GTAP DATABASE Version 6
2005)
Scenario: Five ASEAN countries, i.e. Vietnam, Thailand, Malaysia,

Indonesia and the Philippines, eliminate merchandise tariffs for each
other.
Results:
-
AFTA would bring about a positive welfare change for

Vietnam.
AFTA would contribute to an increase in household income

and reduce poverty in Vietnam.
AFTA would result in trade diversions because Vietnams

imports from ASEAN increases, while imports from nonASEAN members declines.
Vietnams total imports and exports would increase by 3.15%

and 1.73%, respectively.
(Elliott &
Research aim: Investigate the effect of AFTA and the anticipation
Ikemoto,
effect of AFTA on intra- and extra-regional trade flows for ASEAN
2004)
(Indonesia, Thailand, Philippines, Malaysia and Singapore)

Model: A Modified Gravity Model
Data: 1982-1999
Results:
- The formation of AFTA in 1993 did not immediately lead to a
significant increase in intra-regional trade flows, at first.
-
Although the trade flows were small at the beginning, they

increased gradually.
Trade creation was lower during the period 1993 to 1999,

than the preceding period (19881992). One explanation for
this lower trade creation is the rising competition for market
share from China, South American and Western Europe.
42
(Urata &
Kiyota,
Research aim: impact of an East Asia FTA on trade patterns in East

Asia countries (including Japan, South Korea, China, and ASEAN
2003)
countries)
Model: standard GTAP model
Data: GTAP database Version 5
Scenario: Remove trade barriers
Results:
East Asia FTA brings about welfare gains for all members.
There could be minor changes in comparative advantages for

FTA members following FTA.
Sectors in which members have comparative advantage are

projected to expand.
43
3.1.4. Impacts of regional rice trade

liberalisation on ASEAN members
When it comes to the effect of regional rice trade liberalisation, recent attention
has been focussed on the effects of rice trade liberalisation among ASEAN
members on their rice price instability, especially following the food crisis in
2007/2008. This is partially because the use of trade controls to stabilise the
domestic rice price has been responsible for price volatility on the worlds rice
market. The world price of rice in 2007/8 shows a higher volatility relative to that
of wheat and corn, because share of the global rice trade volume in global rice
production was rather small, namely 6%, compared to 23% (wheat) and 14%
(corn) in 2002 (Cornish & Fernandez, 2005). This narrow feature of the world
rice market is a result of several countries pursuing food self-sufficiency. In such
a narrow market, Martin and Anderson (2012, p. 426) point out that an increase
in the worlds rice price between 2006 and 2008 was partially due to changes in
rice trade policies 20 of India and Vietnam. Specifically, these changes contributed
45% of the increase in the world rice price at that time. In order mitigate the
impact of price volatility in the future, Martin and Anderson (2012, p. 426) call
for a collective agreement among rice importers and exporters, on the extent to
which a price-insulating policy will be employed.
In order to reduce rice price volatility, as a consequence of a shortfall in the

world supply in the future, Clarete (2012) suggested an option in which ASEAN
members remove intra-ASEAN tariffs on rice imports. The author supports
his/her idea by simulating situations when India and Chinas output of rice is
reduced by 10%. The results show that India or Chinas decline in rice output has
negative impacts on Indonesia, Malaysia and the Philippines. Indonesias market
price for imports increases by 9.3% and the retail price increases by 0.9%, as a
result of a 10% decrease in Chinas rice production. However, in the second
scenario, in which Indonesia eliminates rice tariffs and Indias rice production
20
Refer to the export restriction on rice that India and Vietnam put into place during the food
crisis in 2007/2008
44
declines by 10%, the results show that the adverse impacts of a 10% output
decline would be far offset by increased imports from Vietnam and Thailand.
Beyond the effect of rice trade liberalisation on price stability, there is a lack of
updated studies on the effects of AFTA on members rice production and trade,
rice self-sufficiency, and economic welfare.
3.2. ASEAN members commitment to

Uruguay Round Agreement
As mentioned in Chapter 2, selected countries domestic support and trade
policies for rice are contingent on their commitments to the Uruguay Round
Agenda. Thus, an insight into these countries URAA commitments can assist in
further understanding the variation in these countries policies for rice and their
future rice trade policies. For this purpose, the remaining sections of this chapter
review the selected countries commitments to URAA agreements, with a focus
on domestic support, market access and export subsidies. These countries
notifications to WTO are also briefly reviewed, followed by a brief summary of
the Doha Agenda. In section 3.4, there is a review of the predicted impacts of
global rice trade liberalisation on ASEAN members rice trade and production.
This section assists in comparing the results of global and regional rice trade,
which is discussed later in the discussion chapter.
3.2.1. Domestic support polices

Domestic support policies are classified into three categories in an increasing
order of trade distortion: Green Box, Blue Box and Amber Box. Green Box
policies refer to the measures that have no or minimal trade distorting impacts,
such as investment in agricultural services and direct payments, which are not
linked to current production. Green Box measures also include income insurance,
natural disaster relief, or environmental protection. WTO members are not
required to reduce their expenditure on these measures. Similarly to Green Box
measures, Blue Box measures refer to support that is not linked with price
45
support, including direct payments that are based on fixed hectares or yield. Blue
Box direct payments differs from Green Box direct payments, where the former
requires the recipients to maintain production.
Compared to Blue Box and Green Box measures, Amber Box measures are more
likely to cause trade distortion. These measures include price support,
government procurement and input subsidies. WTO member countries have to
limit their Amber Box support to below the de minimus level. This level refers to
5% of domestic production value for developed countries and 10% of domestic
production for developing countries, in the base year period from 1989-1998.
Those countries that exceeded this level committed to reducing their total
aggregate measures of support 21 (AMS). The reduction in government outlay for
Amber Box measures varied according to each countrys level of economic
development. Developed countries were committed to reducing 20% of AMS
within six years, while developing countries were committed to reducing 13% of
AMS within 10 years.
According to Thailands latest notification to the WTO, a majority of its

government outlay on Amber Box support was allocated to rice. Expenditure on
other crops declined, while support for rice remained rather stable (WTO,
2010c). India, the Philippines and Indonesia had AMSs lower than the de
minimus level and thus, they could retain AMS (WTO, 2013a).
Most selected countries in this study notified the WTO that their outlay for
Amber Box support was lower than the de minimus level. The situation in the
Philippines, for example, was due to the governments rice procurement 22
accounting for a small percentage of production, namely 4% at that time. On
accession to WTO in 2001, China agreed that the value of its trade-distorting
Amber Box support for agriculture would not exceed 8.5 per cent of its total
21
22
Includes both specific product and non-specific product support and excludes the de minius level.
A factor which was used to calculate AMS
46
value of agricultural output in the base year (2001), which was equivalent to $US
14 billion (Fang et al, 2002). In 2005 and 2006, according to Chinas notification
to the WTO, Amber Box support for rice was negative because the minimum
procurement price was lower than the reference price, which was based on the
base period 1996-1998. Information about Vietnams commitments is not
publicly available.
While government expenditure on Amber Box support declined, that on Green

Box measures tended to rise in several countries (see Table 3.2). Five out of six
countries have a two digit annual growth rate in Green Box support. Indonesia
has the highest annual growth rate, followed by South Korea, the Philippines and
Thailand. Chinas data was not available at that time, because China entered the
WTO after 2001. However, according to Chinas latest notification to the WTO,
China shows an increasing trend in Green Box support, with an average annual
growth rate of 24%, from 2005 to 2008 (WTO, 2011).
Table 3.2: Notification to WTO concerning Green Box supports by selected
countries
Countries
Currency
1995
1996
1997
1998
1999
2000
Korea
W billion
1,748
3,990
5,183
5,796
5,365
5,456
Indonesia
Rp billion
853
401
450
618
1,310
1,613
Japan
billion
2,205
3,169
2,818
2,652
3,002
2,686
Malaysia
RM million
870
611
754
665
495
Thailand
Baht million
Pesos
million
25,258
33,716
41,145
47,596
42,827
3,504
7,398
15,179
7,625
Philippines
Source: (WTO, n.d)
47
2001
Average
annual
growth
rate (%)
48
8,875
4
4
-13
11
17
3.2.2. Market access

Market access under URAA was intended to reduce tariffs and enhance market
entry opportunities for agricultural products. In regards to tariff reduction,
developed countries were committed to reducing their tariff by 36%, on average,
with a minimum reduction of 15% per tariff line over six years. Developing
countries committed to reducing their tariffs by 24%, on average, with a
minimum reduction per tariff line of 10% over ten years. The least developed
countries are exempt from tariff reductions. In order to ensure transparent and
predictable trade policies, non-tariff trade barriers had to be converted into
equivalent tariffs. However, if the conversion could lead to extremely high tariffs,
then countries could adapt tariffication. Following tariffication, countries should
comply with the following: an opening domestic market for a specific product to
5% of domestic consumption of that product by 2000 or 2004 (developing
country members); the application of a tariff rate quota; or agreement not to
introduce any new non-tariff trade barriers.
China, Thailand, Indonesia, the Philippines, South Korea, Japan, and Malaysia
have applied for a tariff rate quota for rice. This quota can be managed in several
ways. The most common observed in several Asian countries, such as Indonesia,
China, Korea and the Philippines, is through state-trading enterprises for rice
imports and exports.
48
Table 3.3: Summary of commitment to reduce AMS and management of rice

import quota in selected countries
Countries
AMS
Market access
Export
subsidies
Tariff
rate
quota
Special
treatment
Special
safeguard
provision
*
Intervention of
state-trading
enterprises in
trade
Value of its
trade-distorting
Amber Box
support for
agriculture
would not
exceed 8.5 per
cent of its total
value of
agricultural
output in the
base year (2001)
(Chinas de
minimis
exemption)
Applied
quota =
5,320
mm
tonnes
Not
applied
Applied
Export: COFCO
is sole rice
exporter
India
Subject to de
minimus level
Not
applied
Not
applied
Thailand
Commit to
reduce AMS by
13% by 2004
Applied
Not
Applied
China
No
commitments
Imports: control
50% of import
quota
In quota
tariff :
60%,
Out
quota
tariff :
65%
49
Not
applied
Food
Cooperation of
India (FCI)
solely import and
export rice
Public
Warehouse
Organization
(PWO) does not
manage rice
exports but gets
involved in rice
exports in two
forms:
government to
government
contracts and
direct negotiation
No
commitments
on export
subsidies
The
Philippines
Subject to de
minimus level
Applied
Applied
National Food
Authority (NFA)
Quota:
350,000
tonnes
NFA has
exclusive control
on rice exports
In quota
tariff:
40%
Allocates inquota imports to

licenced
importers.
Out
quota
tariff
50%
Malaysia
Subject to de
minimus level
Not
applied
Commitment
not to
subsidise
exports
Not
applied
Not
applied
Padiberas
Nasional Berhad
(BERNAS) has
control on rice
imports
Not a WTO member until 1997

Vietnam
*If a product is designated to be subjected to SSP, countries are allowed to take some temporary
measures to mitigate the negative impacts of an import surge on domestic producers. Those measures and
circumstances are defined by the WTO.
** Allows eligible countries to adopt tariff rate quota for rice, but they have to gradually increase market
access for rice imports.
3.3. Doha Round Agenda

Following the URAA, a new round of negotiations on agricultural trade was
launched in March 2000. Objectives and timetables for negotiations in
agriculture and services were introduced in November 2001, as a part of a
declaration of the WTO Fourth Ministerial Conference in Doha, Qatar. Next,
in 2004, WTO members made further progress in launching a Framework
which was designed to focus the negotiations and raise them to a new level.
However, despite several consequent WTO meetings, the deadline to conclude
these negotiations was missed. Accordingly, minimal progress on rice trade
polices has been made since 2001. However, it is noteworthy to mention that The
Doha Round negotiations 23 made further steps in introducing sensitive products,
23
Special treatment provision and special safeguard provision Under URAA allows for several countries
to exempt a number of sensitive products from their general tariff cut formula, due to the important role
50
special product and new special safeguard mechanisms. Rice is one of the
products that is likely to be designated as a sensitive product, if the Doha
negotiations are to be concluded.
3.4. Global rice trade liberalisation

While there are few studies on the effects of intra-ASEAN rice trade
liberalisation on ASEAN members rice prices, production, consumption and
economic welfare, there are several studies on the impacts of multilateral trade
liberalisation (i.e. the removal of all tariffs, export subsidies and domestic
supports) on Vietnam and its ASEAN partners. These studies have predicted that,
together, these policy reforms would result in increased global rice trade. This
increase in rice trade volume would vary from 29% to 15% (Wailes & Carter,
2004). Future trade liberalisation would also raise the world trade-weighted
export price by 10.6% (Food and Agricultural Policy Research Institute, 2002), 6%
(Rosegrant & Meijer, 2007), or 5.52% (Dimaranan, Hertel, & Martin, 2007). If
only tariffs were removed, the study by Food and Agricultural Policy Research
Institute (FAPRI) (2002) found that global trade would increase by 27% and the
world price of rice would increase by 10.3%. The study by FAPRI (2002) also
showed that the results of a tariff removal scenario were approximately similar to
the results of the scenarios of simultaneous removal of all tariffs, domestic
support and export subsidies. Therefore, FAPRI (2002) concluded that tariff
elimination would make a major contribution to an increase in global rice trade
and export prices. This finding is consistent with the results of Wailes and Morat
(2011). These authors showed that, if all countries removed their rice tariffs,
global rice trade and the world exports would increase by 19.8% and 5.4%,
respectively, while import prices would decrease by 19.2%.
When highlighting rice trade by type, according to Wailes and Morat (2011), the
world export of medium grain rice would increase approximately twice that of
of these products in food security and rural development. However, the criteria for sensitive products and
treatment provision for sensitive products was not established in the URAA.
51
long grain rice. The world export price of medium grain rice would increase
substantially by 61%, while that of long grain rice would increase modestly by
1.3%. The trade-weighted import price of medium long grain rice would fall by
62.1%, while that of long grain rice would fall by 15%. Such significant
differences were mainly due to Japan and South Korea, the two key importers of
medium rice, who eliminated their extremely high tariffs on imported rice.
As far as the impact of global rice trade liberalisation on Vietnam in concerned, a
study by FAPRI (2002) found that, if all countries removed their rice tariffs,
Vietnams rice exports would increase by 26%, production would increase by 2%
and consumption would decline by 2%. A recent study by Wailes and Morat
(2011) predicted that, if all countries eliminated rice tariffs, the Vietnamese
producers price would increase by approximately 14%; the consumers price
would increase by approximately 11%; and the export price would increase by
11%. Vietnams rice export quantity would increase by approximately 25% and
most of this increased export would be destined to go to developing countries.
The above studies, which address the impact of trade liberalisation on the world
and Vietnams rice trade, show different results, in relation to the magnitude of
these impacts on trade liberalisation, due to different models, data and
disaggregation approaches being used (see Table 3.4). Some studies adopted
CGE models with multi-regions and multi-commodities, such as the GTAP used
by Dimaranan et al. (2007) and AGRM used by FAPRI (2002), whereas the
study by Wailes and Carter (2004) and Wailes and Morat (2011) employed a
partial equilibrium model, RICEFLOW. Compared to CGE models, which treat
rice as a homogeneous commodity, the RICEFLOW model has an advantage in
differentiating rice by types (short, medium and long grain) and processing levels
(paddy, brown and milled). However, RICEFLOW features only rice and
therefore, it fails to take into account the linkages between rice and other sectors,
when trade liberalisation is simulated.
52
Table 3.4: Summary of selected studies on the impacts of future global trade
liberalisation on global and Vietnams rice trade
Authors
(Wailes &
Morat,
2011)
(Anderson
& Martin,
2005)
Methodology, data and results

Model: RICEFLOW
Base year: 2008
Projection year: 2008
Scenario: Remove rice tariffs worldwide.
Effects on world rice trade:
- Global exports of medium grain rice would increase by 46%,
while that of long grain would increase about 23%.
- Trade-weighted export price of long grain would increase by
6.3%, while that of medium rice would increase by 1.3%.
- Trade-weighted import price of medium rice would fall by
62.1%, while that of long grain rice would decrease by 15%.
Effects on Vietnams rice trade
- Production increase less than 1%.
- Consumption decline by 2.3-2.4%.
- Export increase approx.25% mostly to developing countries.
- Producers price increase approx. 14%.
- Consumers price increase approx.11%.
- Export price increase approx.11%.
Model: LINKAGE
Base year: 2001
Scenario: Potential outcome of Doha Round.
Effects on world trade:
- Trade volume: Export increase approx.28%, Import increase by
35%.
- Price: World export price would increase approx.?8.5%, Import
price would increase approximately by13%.
Effects on Vietnam:
- Trade volume Export increase approximately by 18%, Import
increase approx.?12%,
- Price Vietnams export price decrease approximately by 1%.
53
(Rosegrant
& Meijer,
2007)
(Wailes &
Carter,
2004)
Model: IMPACT
Base year: 2001
Scenario: Full liberalisation (no price difference between domestic
price and world price).
Effects on the worlds trade: Export price would increase by 6%.
Effects on Vietnam: Not mentioned
Model: AGRM 24
Base year: 2002
Scenario: Full liberalisation (removal of all domestic support and trade
barriers).
Effects on the world trade:
- Trade volume would increase by 29%.
- Price would increase by 10.3%.
Effects on Vietnam:
- Exports would increase by 25%.
- Production would increase by 2%.
- Consumption would decline by 2%.
Scenario: Remove trade barriers only.
- Trade volume would increase by 27%.
- Price would increase by 10.6%.
Effects on Vietnam:
- Exports would increase by 26%.
- Production would increase by 2%.
- Consumption would decline by 2%.
24
This model comprises only temperate crops, many livestock products, poultry and
dairy products, for more than 25 countries. Other sectors, such as textiles and food
processing sectors are not included in this model.
54
(Wailes &
Carter,
2004)
(Wailes &
Carter,
2004)
Model: RICEFLOW (Partial equilibrium model)

Base year: 2000
Scenario: Remove all border protection.
- Composite trade volume would increase by 15%.
- Export prices would increase 32.8 %.
- Import prices would decrease by 13.5%.
Trade volume and prices by types:
Medium/short grain rice:
- Trade volume would increase by 73%, while long grain rice
would increase by 7 %.
- Export prices would increase by 91%. Import prices would reduce
by 27%.
Long grain rice
- Export prices would rise marginally by 1.8 %.
Model: AGRM non-spatial dynamic econometric model
Base year: 2005
Scenario: Remove domestic support, tariffs and export subsidies.
- World rice trade increase by 15%. Impact on prices resulting
from removal of import tariffs.
- Changes in prices would mainly result from tariff removals.
- Long grain rice export prices would increase from 18% to 22%.
Model: GTAP
Base year: 1997
Scenario: Remove all tariffs on agriculture, food, manufacturers,
agricultural export subsidies, domestic support.
Effects on world rice trade
- Exports would increase by 21.59%.
(Dimaranan
- Export price would increase by 5.52%.
et al., 2007)
Remarks:
- Developing countries would mainly gain from developed
countries elimination of manufacturing tariffs.
- Regarding policy types, 84% of global welfare gains would come
from tariff liberalisation.
- Regarding commodity types, agricultural and food commodities
would contribute to more than half of global gains.
55
Despite the different approaches used in these studies, several predicted that free
trade would bring about more benefit than loss for Vietnam. Global trade
liberalisation would result in Vietnam increasing its rice production, export
quantities and price. Such impacts may hurt poor consumers, due to an increased
price for rice. However, there are opinions put forward that an increase in the
price of rice can help to reduce poverty, rather than increase the incidences of
poverty in Vietnam, for some reasons (Heo & Doanh, 2009; Ivanic & Martin,
2008). Two of these reasons are a significant proportion of poor farmers depend
on rice production for their livelihood ULFHLVRQHRI9ietnams key exportable
agricultural goods, together with coffee and rubber. An approximate 20% of rice
production, on average over the last decade, was exported. Therefore, rice trade
liberalisation leads to an increase in the export price, thus contributing to the
raising of rice farmers income and reducing poverty.
To sum up, the literature review covers three main topics, which include: the
impacts of global rice trade liberalisation on Vietnam and some ASEAN member,
in regards to price, production, trade, poverty reduction and food security; the
debate on the role of rice trade restriction for the purpose of self-sufficiency and
price stabilisation; and the inconsistent results of studies on the trade creation and
trade diversion of AFTA. The literature review highlights the need for research
that can quantify the impacts of ASEAN tariff reforms on ASEAN members
agricultural prices, production, trade, self-sufficiency, and economic welfare; and
especially on rice. This study, therefore, attempts to address this topic with a
focus on exploring the additional benefits that ASEAN member countries would
receive, if free rice trade among ASEAN members is put forward.
56
Chapter Four KEY FEATURES OF ASEAN

FREE TRADE AGREEMENT
4.1. An overview of ASEAN free trade
agreement (AFTA)
Malaysia, the Philippines, Singapore, Indonesia and Thailand, together,
established the Association of Southeast Asian Nations (ASEAN) in 1967. In
1984, Brunei Darussalam joined ASEAN and became the sixth member.
Together, they are known as the ASEAN six or old members. Vietnam, Lao,
Cambodia and Myanmar joined ASEAN between 1995 and 1999 and they are
known as new members, or CMLV members. 1992 marked a deeper economic
integration among ASEAN members when the ASEAN Free Trade Agreement,
or AFTA, was formed. This agreement came into force in 1993. The formation of
AFTA was followed by later agreements in services, the ASEAN Framework
Agreement on Services (AFAS) in 1995; and the ASEAN Investment Area (AIA)
agreement in 1998. These agreements reflected ASEAN members objectives to
promote intra-trade in goods, services and investment among member countries.
Following AFTA, ASEAN reduced trade barriers, including tariffs and non-tariff
measures, which had been subjected to the Common Effective Preferential Tariff
Scheme (CEPT).
Initially, the CEPT Scheme included four lists: inclusion list, temporary
exclusion list, sensitive list, and general exclusion list. Goods in the inclusion list
were subject to tariff reduction, removal of quantitative restriction and other
trade barriers since early 1993. Tariff reduction for goods in the temporary
exclusion list was delayed until 2000 for old ASEAN members and 2003 for new
members, but it was transferred into the inclusion list afterward. The sensitive list
includes unprocessed agricultural goods, which were excluded from the tariff
reduction scheme at first. However, in 1995, AFTA members amended the 1992
Agreement, and these goods were included in trade liberalisation. Old members
were set to reduce tariffs on these goods by 2010, while new members had a
57
longer deadline, i.e. by 2013 2017. The general exclusion list comprises goods
which are exempted from trade liberalisation for certain reasons, including
national security, animal or plant life and health (Chia, 2013).
Table 4.1 shows comparisons in tariff reduction among ASEAN members, which
have different deadlines for fulfilling their tariff commitments. The old members
are set to complete their tariff reduction/elimination earlier than the new
members. Indonesia, Malaysia, the Philippines and Thailands zero tariff lines
account for more than 98% of the total national tariff lines. Lao, Vietnam,
Cambodia and Myanmars 0% tariff lines account for a smaller share of the total
national tariff lines, compared to the original members 0% tariff lines. For
example, it accounts for approximately two thirds of Vietnams total tariff lines,
compared to 99% of Thailands total tariff lines. Vietnam still maintains a
number of tariff lines above 40%, many of which are levied on motor vehicles
and vehicle parts. Vietnam, the Philippines, Indonesia and Malaysia have less
than 1% of total tariff lines designated into general exclusion lists. The other
three countries do not have general exclusion lists in their schedule.
Table 4.1: A summary of ASEAN members commitments on tariff reduction
under CEPT
Countries
Vietnam
(by 2013)
Number
Total number of tariff lines

included in the CEPT
schedule, including
0%
1-5%
5-10%
>10-20%
>20-30%
30-40%
Above 40%
Unknown yet
General exclusion lists
8,300
5,954
2,111
8
9
2
47
57
112
Philippines
(by 2015)
%
100.00
71.73
25.43
0.10
0.11
0.02
0.57
0.69
1.35
Number
9,819
9,684
90
19
26
100.00
98.63
0.92
0.19
0.26
Indonesia
(by 2015)
Number
10,012
9,899
2
5
10
96
100.00
98.87
0.02
0.05
0.10
0.96
Thailand
(by 2012)
Number
9,558
9,544
14
-
100.00
99.85
0.15
-
Malaysia
(by 2012)
Number
12,329
12,174
60
13
82
100.00
98.74
0.49
0.11
0.67
Cambodia
(by 2015)
Number
7,914
3,209
4,572
27
33
2
71
100.00
40.55
57.77
0.34
0.42
0.03
0.90
Lao
(by 2015)
Number
9,558
8,509
962
87
Source: authors calculation from (Association of Southest Asian Nations, 2009)

Note: Singapore is not included because the majority of Singapores tariffs are
now at zero.
58
100.00
89.02
10.06
0.91
-
Tariff reduction for rice is different for each ASEAN country. Rice tariffs in
Thailand, Lao, Cambodia and Vietnam are reduced to 0 - 5% between 2012 and
2015. However, rice tariffs in Malaysia, Indonesia, and the Philippines are
exempt from preferential tariff reduction. The Philippines charges the highest
tariff on rice imports from ASEAN members (50%), followed by Malaysia (40%)
and Indonesia. According to the CEPT schedule, by 2015 the Philippines and
Malaysia will reduce intra-ASEAN rice tariffs to 35% and 20%, respectively
while Indonesias rice tariff will be reduced to 30%. However, it is helpful to
note that Indonesias current tariff is much lower than 30%. This situation is
because Indonesia employs specific tariffs (430-450 Rp/kg) on rice imports from
all sources. When converted into ad valerom tariffs, they are lower than 30%.
Consistently, Clarete (2012) found that, when converted into ad valorem rates,
Indonesias current tariffs vary from 9% to 11%. Therefore, Indonesias reduced
ad valorem tariffs on rice imports from ASEAN partners by 2015 under CEPT
are actually higher than the current tariffs. In other words, Indonesias rice tariff
will remain unchanged in 2015.
59
4.2. Commitments to reduce rice tariffs in

selected RTAs
Below is a summary of the current tariff and tariff cut commitments in the
regional trade agreements (RTA) between ASEAN and each of the following
countries: China, India, South Korea and Japan. Although this study primarily
analyses the impacts of AFTA on the above mentioned research question (section
3.1.4), this summary is helpful for further understanding the current tariff and
commitments to reducing tariffs on Vietnams rice exports.
ASEAN - New Zealand and Australia 25
Date of signature: 27/2/2009. Date of entry into force: 01/01/2010
Tariff cut schedule: By 2020 all tariffs will be reduced to 0.
The tariff imposed on Vietnams rice exports is already zero.
ASEAN-China
26
Date of signature: 29/11/2004 (Goods) and 14/1/2007 (Services)

Date of entry into force: 01/01/2005 (G) and 01/07/2007 (S)
Tariff cut schedule: Tariff elimination commenced in January 2005 in
accordance with schedules currently under negotiation.
Tariffs on several products belonging to Normal Track list will be eliminated by
2010 (6 founder countries) and by 2018 for Cambodia, Laos, Myanmar and Viet
Nam (CLMV).
Rice falls into the exemption list, and thereby is exempt from liberalisation.
ASEAN-Korea, Republic of 27
Date of signature: 24-08-2006 (G) and 24-11-2008 (S)
Date of entry into force: 01-01-2010 (G) and 01-05-2009 (S)
Tariff cut schedule: Tariffs on all products in the Normal Track will be
eliminated by South Korea no later than 1 January 2010.
25
Based on (MOFAT, 2009)

Based on (WTO, 2006)
27
26
60
Rice falls into the highly sensitive list (Group E) which gives tariff lines exempt
from tariff concessions.
ASEAN-Japan 28
Date of signature: 26-03-2008. Date of entry into force: 01-12-2008
Tariff cut schedule: Schedule of tariff elimination corresponds to different
categories, i.e A, B5, B7, B10, B15, C and R. Rice fall into the R category which
is the exclusion list.
ASEAN-India
29
Date of signature: 13/08/2009

Date of entry into force: 01/6/2010 (For Vietnam and India)
Tariff cut schedule: ASEAN-India Free Trade Area would be realized with
Vietnam by 2018
Rice is exempt from liberalization.
In summary, rice is excluded from tariff elimination in four out of six RTAs in
which Vietnam participates. National food security is usually a rationale for that
exclusion (detailed discussion in chapter two). ASEAN New Zealand and
Australia FTA are the only ones that allow a zero tariff on Vietnams rice.
However, Vietnams rice exports to these two markets are very small. AFTA is
another agreement under which tariffs on rice will be reduced by 2015, but there
will be only a small reduction in tariffs and no changes in quantitative restrictions
on rice imports under AFTA. In this Scenario, how might these small tariff
reductions affect Vietnams rice industry? What are the impacts in the event of
deeper rice tariff reductions by ASEAN partners to 0%? These questions have
been unanswered as yet.
28
29

Based on (WTO, 2010b)
61
Table 4.2: Tariff rate quota in selected countries*

Countries
Tariff rate quota
In quota
tariff
Out quota tariff
Tariff
concession in
FTA
Quota (m
tonnes)
0%
65%
5 320 000
No concession
40%
50%
350
35%
Japan 30
0%
375/ kg
682
No concession
Korea,
Republic of
5%
no provision for imports

above the quota
408 by
2014
No concession
0% 31
5% 32
300 33
5%
China
The
Philippines
Vietnam
No concession
India
20%
Malaysia
Note: * average applied tariff on rice (HS code 1006)

India, Malaysia and Indonesia do not adopt TRQ. Indias tariff is 80%,
Malaysias tariff is 35% and Indonesias tariff is 450Rp/kg.
30
In addition to tariff, Japan also levy a mark-up of Yen 292/kg

Applied to rice from Cambodia
32
Applied to white rice either semi milled, wholly milled or polished
33
Allocated to Cambodia only
31
62
4.3. Composition of Vietnams exports

Table 4.3 shows the composition of Vietnams total exports in 1997 and 2007.
The key exports in 2007 were extraction, including crude oil (20%), textiles
(30%) and equipment (9%). Compared to 1997, the share of agricultural and food
processing goods declined, while extraction, textile and manufacturing increased.
Nevertheless, agricultural and food products continuously accounted for 19% of
total exports in Vietnam, as opposed to 12% in Indonesia and 7% in Malaysia. In
regards to manufacturing exports, Vietnam highly specialises in just a few goods
and exports labour intensive goods, i.e. textiles and clothing, which account for
the largest share.
Table 4.3: Composition of Vietnams exports in 1997 and 2007
Goods
Manufacturing goods
1997
Value
(US$ Million)
6508
2007
Share (%)
74.56
Value
(US$ Million)
39182
Share (%)
80.66
Textiles & clothing
3262
37.37
14352
29.55
Extraction
1694
19.41
9585
19.73
Equipment
803
9.20
6392
13.16
Paper
389
4.46
3332
6.86
Petroleum and chemical products
270
3.09
3326
6.85
Metal products
38
0.44
779
1.60
Motor and transportation
15
0.17
763
1.57
Metal
37
0.42
653
1.34
2221
25.44
9393
19.34
Other food products
754
8.64
4279
8.81
Other crops
762
8.73
2342
4.82
Processed rice
426
4.88
1405
2.89
Veg and fruit
66
0.76
791
1.63
213
2.44
576
1.19
8729
100
48575
100
Agricultural goods
Other agricultural and food products

Total
Source: (GTAP Data Base, Version 8)

63
4.4. Vietnams exports to ASEAN market

The ASEAN market, which accounted for 15% of Vietnams exports in 2007,
was one of Vietnams key exporting markets after the US and EU. Agricultural
and food processing exports had continuously accounted for a large proportion of
9LHWQDPVH[SRUWVWRWKH$6($1PDUNHWDOWKRXJKWKLVVKDUHGHFOLQHGIURP
in 1997 to 20% in 2007 (see Table 4.4). This decline was due to an increased
share of manufacturing exports. In terms of export value, agricultural and food
processing exports to ASEAN increased threefold, from $US 449 million to $US
1513 million over ten years. Processed rice and other food products including
food processing products, were Vietnams key exports to ASEAN members.
Specifically, approximately two thirds of Vietnams processed rice exports were
sold to ASEAN partners in 2007. Among Vietnams exports of agricultural and
food products to ASEAN markets, processed rice also had the highest export
value, namely $US 147 million in 1997 and $US 949 million in 2007.
Table 4.4 Composition of Vietnams exports to ASEAN members in 1997 and
2007
Goods
1997
65.40
Value
(US$ Million)
5,866
322
24.98
2,772
37.57
40
3.10
967
13.10
364
28.24
958
12.98
Textiles and clothing
70
5.43
385
5.22
Metal
22
1.71
338
4.58
Other manufacturing goods
25
1.94
446
6.04
Agricultural goods
446
34.60
1,513
20.50
Processed rice
176
13.65
949
12.86
54
4.19
264
3.58
131
10.16
162
2.20
85
6.59
138
1.87
1289
100
7379
100
Manufacturing goods
Extraction
Equipment
Other food products

Other crops
Total
Value
(US$ Million)
843
2007

64
Share
Share
79.50
4.5. Composition of Vietnams total imports

There were not any significant changes in the composition of Vietnams imports
between 1997 and 2007 (see Table 4.5 ). Over 90% of total imports are
intermediate inputs (chemicals, plastic, fertiliser, leather and textiles) and capital
goods (transport equipment and machinery). The share of manufacturing and
agricultural and food products increased slightly in 2007, while textile, leather
and weather apparel declined.
Table 4.5: Composition of Vietnams total imports in 1997 and 2007

Goods
Manufacturing goods
1997
Value
(US$ Million)
9,187
2007
Share
93.13
Value
(US$ Million)
48,864
Share
90.72
Petroleum & chemical products
2,625
26.61
15,548
28.87
Equipment
3,059
31.01
12,923
23.99
615
6.23
6,930
12.87
1,634
16.56
6,384
11.85
Motor & transportation
584
5.92
3,721
6.91
670
6.79
3,358
6.23
678
6.87
4,999
9.28
64
0.65
1,150
2.14
Other food products
228
2.31
962
1.79
386
2,887
9865
100
53863
100
Metal
Agricultural goods
Vegetable oil
Total
4.6. Vietnams imports from ASEAN

ASEAN suppliers accounted for 23% of Vietnams total imports in 2007. Table
4.6 shows that the composition of Vietnams imports from ASEAN members
remained unchanged between 1997 and 2007. Heavy manufacturing products
accounted for the bulk share, while agricultural and food processing products
accounted for less than 10% of the composite imports from ASEAN. Further
65
examination into the absolute value of agricultural imports from ASEAN

partners shows that Vietnam increased its imports of vegetable oil, processed
food, beverage and tobacco. Vietnams imports of processed rice from ASEAN
partners accounted for just 0.15% of Vietnams agricultural and food imports
from ASEAN, although its value increased remarkably from zero in 1997 to $US
2 billion in 2007.
Table 4.6 Composition of Vietnams imports from ASEAN
Goods
Manufacturing goods
1997
Value
(US$
million)
2242
2007
Share (%)
89.82
Value
(US$
million)
10354
Share (%)
83.53
920
36.86
5495
44.33
Equipment
780
31.25
2379
19.19
Metal
86
3.45
1184
9.55
Paper
95
3.81
760
6.13
123
4.93
536
4.32
238
9.54
254
10.18
845
6.82
Vegetable oil
38
1.52
387
3.12
Other food products
37
1.48
338
2.73
Beverage & tobacco
148
5.93
120
0.97
0.00
0.00
2496
100
11199
90.35
Agricultural goods

Total
66
Chapter Five METHODOLOGY,

ASSUMPTION AND DATA
5.1. Methodology
5.1.1. GTAP Model
This study employs the GTAP model (Global Trade Analysis Project), which is a
computable general equilibrium model with multi-regions and commodities
(Hertel, 1997) . The model is solved using GEMPACK (Harrison & Pearson,
1996). Each region features four agents: producer, private household,
government and a regional household. Connections among these agents within a
region and also with the rest of the world are illustrated in Figure 5.1.
Figure 5.1 : Interaction among economic agents in GTAP model. Adapted from
Brockmeier (2001, p. 16)
Regional household income and allocation of income

The regional household receives income from endowment returns (VOA) and tax
revenues (TAXES). The entire income is allocated to private household
expenditure, government expenditure and savings. In the default GTAP model,
67
each category receives a fixed share of the regional income. The ratio of savings
to the regional income is assumed to be exogenous and constant. Therefore,
quantities of savings increase as regional income increases Whese savings
contribute to a savings pool. This savings pool can then be invested into each
region in two ways. Firstly, investment into each region increases proportionally
in relation to the global pool. Secondly, investment into each region is based on
that regions relative rates of return. The regions that have a higher rate of return,
relative to the global average, will have an increased share RIWKHVDYLQJVSRRO
and vice versa. The ways in which the government and households use their
budget is described in the following section.
Government and household expenditure

There is a difference between government and private household allocation of
expenditure. Government expenditure is governed by the Cobb Douglas utility
function, which states that each commodity used by government occupies a fixed
share. Meanwhile, private household expenditure is governed by a constant
difference of elasticity (CDE) function. This function allows the budget share for
each commodity to change when its relative price changes.
Firms in the GTAP model

Each producer in the model receives payments from selling goods to domestic
and foreign agents. This research employs a constant return to scale production
function for all firms. This implies a change in production output results in the
same proportionate change as in the demand for all intermediate inputs and
aggregate primary inputs (see Figure 5.2). Primary inputs and intermediate inputs
are modelled as two independent bundles. So substitution between primary and
intermediate bundles is equal to zero in the standard model. Therefore, a firms
choice of aggregate primary inputs is not influenced by intermediate input prices
and vice versa. A firms choice of intermediate inputs is subject to a Leontief
production structure (fixed share). A firm sources intermediate inputs from both
domestic and foreign markets under a minimum cost condition. Domestically
produced goods can be substituted by imported goods. For example, imported
68
paddy rice used for processed rice production can be substituted with
domestically produced paddy rice. This substitution allows a firm to choose an
optimal mix of domestically produced and imported paddy rice.
A firms choice of primary inputs (i.e. land, natural resources, capital, unskilled
labour and skilled labour) varies with relative prices of primary inputs. For
example, if the unskilled labour wage increases, producers can reduce their costs
by reducing the unskilled labour input and increasing, for example, capital input.
This substitution subjects to a constant elasticity of substitution (CES).
Industry output of commodity i in region r

Leontief
Value added in industry j of region r

region r
Demand for commodity i for use by j in
CES
CES
Land
markets
Labour
Capital
Domestic market
Foreign
Figure 5.2: Source of a producers inputs
Trade flow and Armington elasticity in GTAP model

The model employs the Armington assumption that goods traded internationally
are differentiated by origin. To the extent that country may specializes in a
certain type of rice, GTAP model takes into account since it differentiates rice by
origin. Figure 5.3 describes how a regional agent makes decision when choosing
goods. Tariff reductions among RTA members are a good example, which can
explain this figure. This tariff reduction results in a fall in the import price (CIF
price) charged by RTA partners, thus causing a private household, for example,
to alter its sourcing away from non-RTA partners in favour of RTA partners. The
magnitude of alteration depends on the Armington elasticity of substitution
69
parameter (CES 2) and the fall in CIF prices. After deciding the sourcing for
imported goods, the firms decide an optimum bundle of imported and
domestically produced goods. Again, another Amington elasticity of substitution
parameter (CES 1) and relative prices determine the magnitude of the shifting
away from domestic goods in favour of imported goods, or vice versa.
Final demand
CES 1
Imported goods
Domestic goods
CES 2
Sources of imports
Figure 5.3: Firms and private households decision on sourcing goods
As described above, Armington elasticity of substitution parameters, i.e. CES 1

and CES 2, are crucial for computing changes in the sourcing of imports. This
change, in turn, may lead to a trade diversion/trade creation affect and changes in
terms of trade. If CES 2 is large, they elaborate the switch in sourcing away from
non-RTA members goods in favour of RTA members goods. On the contrary,
if CES 2 is small, it could dampen the effects of a large fall in the import price
from RTA partners following the tariff reforms and then there would not be a
significant switch in sourcing away from non-RTA members in favour of RTA
members. A similar situation occurs for the substitution between domestic goods
and imported goods.
70
5.1.2. Model assumptions

This research applies the standard GTAP closure. Some key features of this
standard closure are listed as follows:
x The fixed (exogenous) variables include: population, supply of primary
factors and technical change variables.
x Labour and capital are modelled as mobile factors across sectors. This
means they can be freely migrated across sectors at zero cost, following a shock.
In contrast to labour and capital, land and natural resources are modelled as
sluggish factors. Therefore, land used for paddy rice production, for example, can
be converted sluggishly into pasture and vice versa. Land is employed by
agricultural sectors only. Similarly, a natural resource is employed by extractive
sectors only.
x A firm production function is subject to constant return to scale. The
model allows substitution among primary factors, i.e. land, labour and capital, in
response to relative price changes. In the GTAP standard closure, the substitution
parameter among aggregate primary and intermediate inputs equals to 0, due to
lack of data. Similarly, the standard model does not allow substitutions among
intermediate inputs and therefore a proportion of each intermediate input to the
total cost intermediate inputs are fixed.
x Firms earn zero profit and operate under perfectly competitive market
conditions.
5.1.3. Why is GTAP employed in this

research?
The GTAP model is employed in this study for four reasons. Firstly, GTAP is a
general equilibrium model with an advantage over partial equilibrium in two
ways. The former can model the mobility of endowment resources, capital,
labour and land among regional sectors, thus allowing the interaction among
regional sectors, following a shock, to be examined. Secondly, although the
GTAP database does not differentiate rice by type (long, short/medium grain), or
71
level of process (paddy, brown and white rice), GTAP can differentiate rice by
origin of production, thus enabling bilateral trade flows to be modelled. To a
limited extent, this also captures product differentiation. Thirdly, this model can
measure the economic benefits of tariff reductions through computing welfare
changes. In addition, GTAP decomposes welfare changes into several
components, including those due to changes in terms of trade, resource allocation
and technological change. This enables researchers to examine the sources of
welfare gain after a tariff reduction has been applied. Fourthly, the GTAP model
is one of the most sophisticated models that can be easily accessible. The model
runs an approachable and ready-made database, which is updated to a 2007
benchmark for all regions worldwide. In addition, the model and data users can
easily receive technical support from the providers; and gain access to technical
papers and previous CGE-based research available on the GTAP website. Thus,
the resources available can assist particularly beginning modellers in employing
the techniques for their own purposes.
Despite its advantages, GTAP has some limitations. Firstly, the standard GTAP
model is a static one, which is unable to produce the time-path of trade
liberalisation implication and effects. The results from a GTAP model are usually
interpreted as medium-term effects, following implementation of tariff cut
commitments. Secondly, the results from GTAP may be sensitive to the models
assumptions. The common assumptions are perfectly competitive markets, full
employment and constant returns to scale. For example, a study by Nguyen, Tran
Kim, Madanmohan and John (2005) found that the impacts that trade
liberalisation has on Vietnam are significantly different, when assumptions about
Vietnams labour market are changed. Nguyen et al. (2005) concluded that model
structure choice is vital to how trade liberalisation impacts are seen. Nevertheless,
changing the GTAP model structure was beyond the scope of the current
research.
72
Thirdly, it is agreed that the impacts of tariff reform are sensitive to the choice of
substitution elasticities. Armington elasticity of substitution parameters are very
important for this research. They influence imports and therefore they determine
economic welfare gain effects. The results from GTAP may have a bias, because
GTAP uses identical Armington parameters for every region. Therefore, in order
to be able to have more reliable results, Hertel (2010) suggests the GTAP users
should consider how the results will change (when Armington elasticity of
substitutions parameters changes), by conducting a sensitivity analysis.
Nevertheless, given that the aim is to gain a deeper understanding of the
directional impacts of RTAs, rather than to numerically measure the impacts in
absolute terms, the sensitivity test goes beyond the scope of this study.
In spite of the limitations, GTAP is the most sophisticated trade analysis model
publicly available to researchers. GTAP is also a well-known tool used for
liberalised trade studies, because it incorporates trade flows of many
commodities across all regions in the world. In addition, the model is supported
by an extensive and accessible database. Therefore, this model is applied in this
research.
5.2. Data
5.2.1. Data aggregation
This research employs the latest GTAP database Version 8. This database
contains a wide range of data for 129 regions and 57 commodities, including
bilateral trade flows, protection and transport data. This database also includes
input-output data that characterise the connections among sectors within regions,
thus allowing a study of intra-industry trade and mutual affects among sectors
following tariff reforms. The latest data available for all countries is for the year
2007.
73
The GTAP database provides data for 58 commodities and 129 regions. Since
this study uses a limited GEMPACK licence, it was unable to study beyond 30
aggregated commodities. Thus, 59 commodities and 129 regions are aggregated
into 30 commodities and 19 regions. Due to the focus of this research on ASEAN
agricultural trade, 23 agricultural and food commodities out of these 59
commodities remain almost unchanged, with the aim to examine the linkage
among these sectors, following the tariff reforms. 35 remaining manufacturing
goods are aggregated into seven goods, including one primary good, i.e. crude oil
nested in extraction goods. Extraction, equipment and textile goods are key
contributors to Vietnams exports, while chemical and petroleum products are
Vietnams key imports. See Appendix 2 for details of this commodity
aggregation.
ASEAN countries in this research refer to Vietnam, Indonesia, the Philippines,

Thailand, Singapore, Malaysia, Lao and Cambodia. The remaining ASEAN
members, i.e. Myanmar and Brunei are excluded from the simulation and
analysis. This exclusion is due to the GTAP database aggregating those two
countries into one region named other ASEAN member. Such aggregation
makes it difficult to know the extent to which this aggregated region would
reduce its intra-ASEAN tariffs, due to lack of required data.
Under CEPT, each countrys timeline for tariff cut/elimination varies. The
ASEAN founders, except Singapore, are to fulfil their tariff cut commitments by
2012. Singapore differs from the other members, because the majority of
Singapores tariffs are already at zero. New members have a longer time than
older members to reduce/eliminate tariffs. For simplicity, this research assumes
that all ASEAN countries will fulfil their commitments on tariff reduction by the
same year, i.e. 2015.
74
5.2.2. ASEAN members tariffs

There are some noteworthy points in regard to tariff data in the GTAP database,
which is of importance for this research. One individual tariff out of a GTAP
regions tariff set is derived from a trade-weighted aggregation of a bundle of ad
volerem equivalent tariff lines. This weight is based on the weight of the
reference group of the region in concern. Specifically, this weight is computed
through the use of the reference group trade flows, rather than bilateral trade
flows. The reference group refers to the group of countries that share similarity
with the importer, in terms of trade openness and GDP per capita (PPP).
Computation of this weight is subjected to the following equation:
,, = ,, ()
.,.,
.,., ()
,, : refers to the value of product i (defined at the HS6

level) imported by country reporter from country partner.
,,() : refers to product i import value of the reference group
to which the country reporter belongs
M .,.,reporter : refers to the total value of reporters imports.
.,.,
.,., ()
: implies the share of total imports from the reporter out of the
total imports of its reference group.

It is also important to note that a tariff in the CEPT schedule (shown in Table 4.1
in section 4.1) differs from a GTAP tariff that the former is just a single tariff line
at national levels (HS8 or HS10 level). Whereas, the latter is a result of trade
weighted aggregation of a bundle of tariff lines at HS6 levels. For example,
grains tariff in the GTAP database is aggregated from HS6 tariffs on maize,
barley, rye, oats and other cereals. For further details about tariff aggregation
methods, see Bout, Decreux, Fontagn, Jean and Laborde (2008) .
75
Figure 5.4 shows that ASEAN members intra-ASEAN tariffs on agricultural

and food products are low, with zero tariffs accounting for 50%, except for
Thailand. Thailand has a greater number of non-zero tariffs on agricultural and
food products than the remaining ASEAN members. Malaysia differs from the
remaining ASEAN members that it has the largest proportion of zero tariffs, and
the highest peak tariff (137.85% on imports of other crops, including nonmanufactured tobacco and tobacco refuse from the Philippines). Tariffs charged
by Vietnam have a wider range in comparison to those of Thailand, the
Philippines, Cambodia and Lao. Vietnams peak tariff is imposed on the
aggregated tobacco and beverage commodity, which is exempt from trade
liberalisation.
VIETNAM
INDONESIA
PHILLIPINES
THAILAND
MALAYSIA
CAMBODIA
LAO
18
36
54
72
%
90
108
126
Each symbol represents up to 18 observations.
Figure 5.4: Comparison of intra-ASEAN tariffs on agricultural and food products

among ASEAN members (Source:(GTAP Data Base, Version 8))
There are a few possible explanations for the low agricultural tariffs among
ASEAN members. They could be a result of gradual tariff reduction in
accordance with the CEPT schedule. However, this is not the case for some
goods that show a nil initial trade flow. The case of Vietnams paddy rice is an
example of this situation. Vietnam did not export paddy rice to ASEAN members
76
in 2007, so there was a nil trade flow of paddy rice between Vietnam and its
ASEAN partners. Hence, these partners tariffs on paddy rice imports from
Vietnam are 0%, which appears to be ambiguous free trade. In reality, Vietnams
export of paddy rice to Malaysia, for example, could be subject to a tariff of 40%.
This situation occurs because the computation of GTAP tariffs employs a tradeweighted average method, as mentioned above. This example illustrates that the
aggregation method fails to take into accounts the problem arising from nil trade
flows that are possibly due to prohibitive tariffs. Hence, in the absence of such
prohibitive tariffs, the model could underestimate the impacts of the tariff
reforms on trade, production and the other relevant variables. Similar examples
of this problem include the wheat, wool and raw milk tariffs of all ASEAN
members.
5.2.3. ASEAN members tariffs on

Vietnamese rice
Table 5.1: Proportion of Vietnams processed rice exports to ASEAN markets by
level of tariffs
Countries
Exports
Value
(US$ Million)
Tariffs (%)
Share
(%)
Base
data
To be reduced by
2015 under AFTA
Indonesia
435.43
30.22
8.04
No change
Philippines
430.11
29.85
50
35
Malaysia
67.53
4.69
40
20
Singapore
17.86
1.24
Lao
0.23
0.02
Thailand
0.21
0.01
8.99
Cambodia
0.1
0.01
6.21
SSA
187.45
13.01
9.92
Other countries
301.80
20.95
1440.72
100.00
Total
Table 5.1 shows that Indonesia, the Philippines and Malaysia are Vietnams
largest rice importing partners, with the two first partners accounting for 60% of
Vietnams rice exports. Compared with the remaining ASEAN partners, the
77
Philippines charge the highest tariff of 50%, followed by Malaysia (40%) and
Indonesia (8.04%). According to the CEPT schedule, by 2015 the Philippines
will reduce its intra-ASEAN rice tariffs to 35%, while Indonesias rice tariff will
remain unchanged by 2015 (as mentioned in section 4.1). Therefore, no shock
was applied to Indonesias rice tariffs when modeling AFTA.
5.3. Scenario designs34

Scenario designs are based on the following research questions:
1. What will be the impacts of AFTA agricultural tariff reductions on the rice
sectors in Vietnam and ASEAN members, in terms of production, private
household consumption, exports and imports and rice self-sufficiency?
2. What will be the impacts of AFTA manufacturing tariff reductions on the rice
sectors in Vietnam and ASEAN members, in terms of production, private
household consumption, exports and imports and rice self-sufficiency?
3. Under CEPT commitments, the Philippines, Malaysia are to reduce their rice
tariffs to the agreed levels by 2015, but will not eliminate their rice tariffs. To
what extent will this rice tariff reduction increase Vietnams rice production and
rice exports? Would rice tariff elimination further enhance or reduce each
members welfare? What could be the hurdles against ASEAN members further
reducing their rice tariffs to 0%?
4. Will AFTA result in trade creation or trade diversion, when all members
complete their tariff reduction commitments, as stated in the CEPT schedule?
34
Following the rice price crisis in 2007, there exists a debate on the role of rice trade liberalization to
preventing price volatility in the future. Some studies pointed out that rice trade policy of major rice
players were significant factors behind the rice crisis in 2007/2008. There is a suggestion for further trade
reforms to avoid a similar crisis in the future. The suggestions however have not yet been evaluated
through empirical research. However, this topic is beyond the scope of this current study.
78
5. Will Vietnam gain or loss from AFTA? From where does the gain/loss arise?
Four scenarios are designed to answer these five questions stated above:
Baseline scenario: 2007 data
Scenario 1 (agricultural tariff reduction): ASEAN member countries reduce intraASEAN tariffs on agricultural and food products to their 2015 levels, with the
exception of rice.
Scenario 2 (manufacturing tariff reduction): Intra-ASEAN tariffs on
manufacturing goods are reduced to their 2015 levels.
Scenario 3 (partial rice trade liberalisation): Intra-ASEAN tariffs on paddy rice
and processed rice are reduced to their 2015 levels.
Scenario 4 (complete rice trade liberalisation): Intra-ASEAN tariffs on paddy
rice and processed rice are reduced from 2015 levels to 0%.
In this study, the results of each scenario serve as a base for the subsequent
scenario. In other words, the result is incremental to the previous scenarios
results. This approach has two advantages. Firstly, it enables a separate
examination of the impacts of agricultural and manufacturing trade liberalisation
on the rice industry. This approach also allows a separate study on the economic
static impacts of AFTA: that is, welfare change, trade creation and trade
diversion. Secondly, this approach enables the isolation of the contribution of
rice tariff reduction/elimination to regional welfare changes.
79
Chapter Six RESULTS AND

INTERPRETATION
For each scenario, the changes in producer price, import and export prices are
discussed first, because these changes affect private households decisions in
choosing an optimum combination of goods to provide maximum utility.
Likewise, the price chsanges affect producers decision on sourcing of goods,
from foreign or domestic market. The price changes also results in output
expansion and contraction for each sector. Following discussion of changes in
exports and imports section, changes in rice production and other sectors are
discussed. Changes to private households consumption and an analysis of
welfare outcomes are the last sections in each Scenario.
6.1. Scenario 135

6.1.1. The impacts of agricultural tariff
reforms on Vietnam
6.1.1.1. Composite import prices36 of
agricultural goods
The import prices of most agricultural goods decline in response to the intraASEAN tariff reduction, but the decline is very minor for most goods (See Table
6.1). This result is influenced by low initial intra-ASEAN tariffs, and low shares
of intra-ASEAN imports in the imports of each good. There were a few products
with a share above 30%, such as processed rice (100%), sugar (76%), forestry
(36%), fishing (32%), vegetable oil (34%), and processed food (35%). However,
forestry, fishing and processed food imports are initially subject to low tariffs and
35
In Scenario 1, ASEAN member countries reduce intra-ASEAN tariffs on agricultural and food products
to 2015 levels, with the exception of rice.
36
Composite import/export price for each good is computed by weighted-trade import/export price an
importer/exporter pays/receives to all of its suppliers/buyers of that good. The weight is based on
suppliers/buyers share of the good in question.
80
therefore, their import price reduces only slightly, following the tariff reforms.
Consequently, by 2015 only sugar and vegetable oil import prices fall by more
than one per cent, following the agricultural tariff reforms.
Table 6.1: The changes in Vietnams agricultural prices, production and trade
following intra-ASEAN tariff reforms (%)
Goods
Producer's
price
Production
Composite
export
price
Aggregate
exports
Composite
import price
Aggregate
imports
Paddy rice
0.35
0.07
0.35
-2.65
-0.01
1.88
Wheat
-0.4
1.82
-0.4
3.35
-0.01
0.18
Grains
0.36
0.36
1.16
0.3
Vegetable and fruit
0.53
0.38
0.53
1.93
-0.61
1.26
Oil seed
3.72
9.53
3.72
21.03
-0.43
4.12
-0.05
-1.16
-0.05
0.35
0.02
-1.33
Other crops
0.13
-0.46
0.13
-0.33
-1.97
0.81
Cattle and animal products
0.33
0.01
0.33
-1.28
0.12
0.41
0.2
-0.11
0.2
-0.23
-0.02
0.14
Raw milk
0.17
0.2
0.17
-1.19
-0.01
0.16
Wool
0.22
-0.14
0.22
-2.82
-0.01
1.07
Forestry
0.02
-0.08
0.02
-0.07
-0.03
0.03
Fishing
0.22
0.09
0.22
-0.52
0.02
0.45
-0.02
-0.02
0.02
Meat
0.07
0.05
0.07
2.23
-0.01
0.09
Meat products
0.09
-0.91
0.09
1.21
-0.7
2.09
Vegetable oil
0.47
-4.33
0.47
-1.63
-1.32
1.05
Dairy products
-0.05
0.38
-0.05
5.22
-0.02
0.08
Processed rice
0.28
0.07
0.28
0.17
0.23
0.15
-0.18
-1.26
-0.18
20.51
-7.39
19.85
0.11
0.23
0.11
0.42
-0.08
0.34
Sugar cane/beets
Other animal products
Extraction
Sugar
Other food products
6.1.1.2. Producer prices of agricultural

goods
Table 6.1 shows that the price of oilseeds has increased the most among all goods.
This increase is due to an increase in export demand which leads to higher export
price and the producer price. These increasing prices encourage the producer to
expand production. This expansion leads to demand for land, thus pushing up the
land price. Oilseed production is land and labour intensive, because land and
81
labour account for approximately 40% and 32% of production costs, respectively.
Similarly, vegetables, fruits, grain and paddy rice prices increase and those
sectors slightly expand their production. Vegetable oil price increases, due to the
increased price of oilseed used for vegetable oil.
One would expect that intra-ASEAN agricultural tariff reforms would cause
wages in Vietnam to rise should outputs expand. However, the outcome of
Scenario 1 shows that the unskilled labour wage in Vietnam increases only
marginally (data is not shown). This is, in part, because there is not any
significant change in Vietnams trade and production pattern with the exception
of oilseeds, following the agricultural tariff reforms. These changes are further
discussed in the following sections.
6.1.1.3. Aggregate exports

In 2007, Vietnams three top agricultural exports were processed foods such as
processed fish and seafood included in other food products, processed rice and
vegetable and fruits. The simulated outcome of the agricultural tariff reforms are
that Vietnam can increase its exports of these goods only slightly. The exports of
vegetables and fruits increase by 1.93% (see Table 6.1). Further examination
shows that the exports to Thailand increase almost 200% while the exports to
non-ASEAN members fall considerably, thus resulting in just a minor increase in
composite exports of vegetable and fruit. Regarding the export of other food
products, in which Vietnam also has a comparative advantage, Table 6.1 shows
little change in these exports. This result is because the initial intra-ASEAN
tariffs are low and therefore, there is negligible change in the import price and
import demand of Vietnamese processed food by ASEAN partners. Similarly,
Vietnams exports of paddy rice and processed rice increase only slightly. This
result can be explained in two ways. Firstly, intra-ASEAN rice tariffs remain
unchanged in this Scenario. Secondly, Vietnams exports of rice to most nonASEAN members have declined while the exports to a few ASEAN members,
such as the Philippines and Malaysia, increase slightly. This result is due to
82
Vietnams export price of rice increasing slightly, relative to the export price of
rice from non-ASEAN members, for example India (data is not shown).
The unexpected outcomes of Scenario 1 are the increased exports of products in

which Vietnam does not have a comparative advantage, i.e. oilseed and sugar.
Interestingly, these exports register the largest increases among all agricultural
products. The increase in export of oilseed mainly results from increased import
demand from Thailand, following Thailand cutting its tariffs on oilseed from
Vietnam by 29.9%. Similarly, Vietnams export of sugar increases significantly
by 20%, mainly due to Indonesias increased import of sugar from Vietnam by
57%, following Indonesias tariff cut on sugar imported from Vietnam. The
tariff cut leads to a decline in the relative price of sugar imported from Vietnam,
relative to the price of local products in Thailand and Indonesia and thus, this
encourages Thai and Indonesian agents to switch their sourcing in favour of
sugar from Vietnam.
6.1.1.4. Aggregate imports

Following the agricultural tariff reforms, imports of highly protected goods, i.e.
sugar and meat, show large increases. The sugar sector registers a significant
increase in both imports and exports. The increase in imports is due to a fall in
the import price of imported sugar, following Vietnams tariff cut for imported
sugar from Thailand, which is the only net sugar exporter among ASEAN
members. Table 6.1 shows the import price of sugar falls the most among
agricultural imports, namely 7.39%. Similarly, the import of meat products
increases, since Vietnam reduces tariffs on the Philippines and Thailands
products.
The remaining sectors show only minor changes in imports, for example, the
import of other crops and vegetable and fruit goods increase by 0.81% and
1.26%, respectively. Examination of import sourcing reveals that imports from
ASEAN members increase remarkably, but this increase is offset by a decline in
83
the imports from non-ASEAN members, thus resulting in a minor change in the
composite import quantities of these goods. It is useful to mention the minor
changes in imports of other crops and vegetable oil, for two reasons. Firstly,
the imported other crop goods are subject to large tariff cuts, especially imports
from the Philippines, Cambodia and Lao. Conversely, vegetable oil has low
initial tariffs and thus experiences a lower tariff cut compared to other crops
goods. However, vegetable oil accounts for the largest share of Vietnams
agricultural imports, namely 22%, compared to 9% of other crops 37.
6.1.2. Impacts of agricultural tariff reforms

on ASEAN members
6.1.2.1. Change in trade balance of
selected goods of ASEAN members
Table 6.2 presents the changes in trade balances in some key agricultural goods
as a result of agricultural tariff reforms. The sectors with the largest falls in trade
balance are Malaysias other crops, Indonesias sugar, the Philippines sugar
and Thailands vegetable and fruit. Those sectors are initially protected by high
tariffs and the reduction of such protection can understandably increase imports
and reduce domestic production and exports. Consequently, the trade balances
fall. Vietnams vegetable oil trade balance reduces, as opposed to Indonesias
and Malaysias trade balance of the same commodity, which increase. Another
example is Indonesia and the Philippiness deteriorated trade balance, as opposed
to Thailands improved trade balance in sugar.
37
Vegetable oil, processed foods and other crops accounted for 45%, 17% and 8%,
respectively, of Vietnams total agricultural imports in 2007.
84
Table 6.2: Changes in trade balance ($US million) of ASEAN members following
intra-ASEAN agricultural tariff reforms
Goods
Vietnam
Indonesia
Philippines
Singapore
Thailand
Malaysia
Cambodia
-0.3
-0.03
-0.02
-0.13
-3.65
-0.04
-0.14
-0.17
6.5
0.8
-11.31
-3.08
-22.94
-1.1
-1.17
12.26
12.72
-17.65
-4.28
-40.74
7.97
2.3
1.15
15.9
-0.12
-2.74
-0.19
-10.11
-3.68
6.06
1.32
0.02
-0.04
-0.01
-0.06
Other crops
-10.83
21.55
182.63
-1.79
127.98
-69.94
13.15
1.23
Extraction
-1.75
4.16
3.86
5.57
22.87
-43.93
0.1
-0.02
-13.77
24.65
-24.71
2.44
-7.56
72.55
-0.97
-0.3
Sugar
-7.32
-66.3
-29.28
11.1
140.53
6.15
-1.18
-0.04
Other food
products
19.88
24.2
-19.79
63.61
42.07
210.91
-15.79
-2.88
Textile and
clothing
-0.07
-7.39
-9.47
-0.72
39.36
-3.36
0.25
-0.02
Paper
-3.47
-7.09
-1.51
-0.91
-10.19
-20.32
0.85
0.08
0.1
-10.09
-3.33
-9.32
-39.53
82.6
-4.12
0.02
-8.62
-7.68
-7.58
-28.53
-130.61
-179.79
1.15
0.13
-8.3
-3.42
-9.48
-14.61
-66.47
-49.32
3.64
0.2
-5.76
-3.11
60.18
10.45
-9.13
-18.33
6.61
2.63
Paddy rice
Processed rice
Vegetables
and fruits
Oil seed
Sugar cane/beet
Vegetable oil
Petroleum and
chemical products
Equipment
Services
Total
Lao
As far as the processed rice trade balance is concerned, Vietnams exports

increase marginally while Thailands rice exports fall. This difference is due to
the increasing import demand for rice from Malaysia and the Philippines.
Vietnams share of the rice market in those two markets is larger than Thailands
market share. The Philippines and Malaysias rice trade balances are also
projected to fall, following agricultural trade reforms. This reduction in the
Philippines trade balance is due to the expansion of a more relatively profitable
sector, for example, other crops production (i.e. cash crops) in response to the
tariff reforms. These reforms lead to primary resources flowing from the
protected sectors to the relatively more profitable sectors following liberalisation
and therefore enabling the production of other crops to expand. The increase
in production of labour-intensive goods, such as cash crops, causes labour wages
85
to rise. As a result, profit in rice production is lower, relative to cash crop

production, for example, and thus causes rice production to slightly contract. The
demand for rice, therefore, is partially met by increasing rice imports. The case
of Malaysia is slightly different from the Philippines. Processed rice production
in Malaysia expands, following the tariff reforms. As Malaysia relies on
imported processed rice for intermediate input use in its own production of these
goods, the expansion of its processed rice production leads to an increase in
import demand for processed rice, as a key intermediate input.
Overall, agricultural trade reform enables the Philippines, Cambodia and Lao to
improve their total trade balance. However, the remaining ASEAN members
total trade balance is projected to fall. Thailands and Malaysias trade balances
are notable examples. One noteworthy outcome of the agricultural tariff reform is
that it enables ASEAN members to increase the production and export of
processed food (denoted as other food products), due to cheaper sourcing of
inputs. The evidence is displayed in Table 6.2. Processed food exports in
Malaysia increase the most, compared to the remaining ASEAN members,
followed by Thailand and Vietnam. However, this increase is partly diminished
by a reduction in the export of equipment from Malaysia and Thailand, because
the increased export price of this product places the exports of these two
countries at a disadvantage. Such an increasing export price can be attributed to
higher wages and capital costs used for equipment production, as a result of
increasing agricultural production in some sectors which are labour intensive
relative to manufacturing production, for example other crops in Thailand and
wheat production in Malaysia.
86
6.1.2.2. Change in ASEANs production

The reduction in tariffs causes changes in production patterns in liberalising
countries and other countries. Some sectors are projected to expand, which can
be attributed to increased export and domestic demand. Meanwhile, some sectors
are projected to contract, due to a fall in relative prices and an increase in imports.
Table 6.3 shows significant changes in the production of some selected goods. 38
The increase in production of most goods can be attributed to the increased
export price and export demand. Examples of goods with increased production,
along with exports, are other crops in the Philippines, Cambodia and Thailand
and oilseed in Lao and Vietnam, other food products in Malaysia and sugar in
Singapore and Thailand. Conversely, the contraction in some sectors is due to a
decreased import price and an increase in imports. Notable examples of sectors
that are projected to contract the most are Vietnams vegetable oil and
Indonesias sugar and sugar cane production.
Vietnams production of oilseed increases by 8% in respond to Thailands

increased imports of oilseed. Conversely, vegetable oil production contracts
slightly by about 4%, since the price of vegetable oil declines and imports
increase, as discussed previously. The remaining sectors show minor changes in
output. For example, paddy rice and processed rice production are projected to
fall by only 0.07%. Similarly other crops and sugar productions fall by only
0.47% and 1.26%, respectively. The domestic production of sugar experiences a
minor change irrespective of a large tariff cut. This can be possibly explained by
increasing export demand in response to Thailands increased import demand for
sugar.
38
The remaining goods, including paddy rice and processed rice, are not included in Table 6.3 because
they show neglegible hanges.
87
Table 6.3: Key changes in selected sectors in some selected ASEAN members
(%)
Goods
Countries
Production
Domestic
price
Aggregate
exports
Export
price
Aggregate
imports
Sugar
Vietnam
-1.26
-0.18
20.51
-0.18
19.85
-7.39
Sugar
Indonesia
-3.91
-0.75
-6.71
-0.75
5.09
-4.77
Sugar
Philippines
-2.93
0.19
0.97
0.19
38.82
-12.36
Sugar
Singapore
20.59
0.05
32.22
0.05
1.19
0.34
Sugar
Thailand
5.43
0.68
9.84
0.68
9.42
-2.63
Sugar
Malaysia
4.18
0.82
4.97
0.82
0.43
0.07
Sugar
Cambodia
-2.7
0.15
-0.94
0.15
1.06
-1.27
Sugar
Lao
1.48
-0.26
1.31
-0.26
-0.1
0.59
Sugar cane/beet
Vietnam
-1.16
-0.05
0.35
-0.05
-1.33
0.02
Sugar cane/beet
Indonesia
-3.84
-1.29
7.43
-1.29
-7.18
0.02
Sugar cane/beet
Philippines
-2.77
0.37
-1.87
0.37
0.91
0.02
Sugar cane/beet
Singapore
-0.87
4.21
-19.99
4.21
6.35
0.01
Sugar cane/beet
Thailand
5.4
2.14
-10.71
2.14
2.17
0.02
Sugar cane/beet
Malaysia
2.45
0.82
-4.24
0.82
3.16
-0.03
Sugar cane/beet
Cambodia
-2.53
0.9
-4.63
0.9
2.15
0.01
Sugar cane/beet
Lao
-0.19
0.45
-2.3
0.45
1.02
0.01
Vegetable oil
Vietnam
-4.33
0.47
-1.63
0.47
1.05
-1.32
Vegetable oil
Indonesia
0.15
0.06
0.27
0.06
0.32
-0.02
Vegetable oil
Philippines
-1.59
0.21
-1.14
0.21
2.35
-1.09
Vegetable oil
Singapore
5.23
0.1
6.3
0.1
3.16
0.16
Vegetable oil
Thailand
-0.13
-0.24
3.65
-0.24
2.47
-2.41
Vegetable oil
Malaysia
0.57
0.21
0.71
0.21
1.01
0.01
Vegetable oil
Cambodia
-3.32
1.77
-9.64
1.77
2.76
0.04
Vegetable oil
Lao
-2.88
1.01
-5.32
1.01
6.01
-1.76
Oil seeds
Vietnam
9.53
3.72
21.03
3.72
4.12
-0.43
Oil seeds
Indonesia
0.1
0.16
5.03
0.16
0.45
0.01
Oil seeds
Philippines
-1.28
0.95
-4.38
0.95
1.83
-0.31
Oil seeds
Singapore
-2.81
2.95
-11.2
2.95
0.86
0.08
Oil seeds
Thailand
-1.56
0.3
5.55
0.3
1.07
-1.11
Oil seeds
Malaysia
0.45
0.38
0.71
0.38
1.28
0.05
Oil seeds
Cambodia
7.31
5.63
61.96
5.63
12.07
0.28
Oil seeds
Lao
5.43
3.14
69.27
3.14
5.95
0.48
Veg and fruits
Vietnam
0.38
0.53
1.93
0.53
1.26
-0.61
Veg and fruits
Indonesia
0.09
0.17
3.37
0.17
0.18
0.06
Veg and fruits
Philippines
-0.88
0.99
-2.59
0.99
1.88
-0.23
Veg and fruits
Singapore
-5.35
2.53
-7.07
2.53
0.39
0.21
Veg and fruits
Thailand
-0.53
0.67
-0.92
0.67
12.8
-5.94
Veg and fruits
Malaysia
2.59
0.96
7.71
0.96
0.82
-0.25
Veg and fruits
Cambodia
-0.05
2.08
5.64
2.08
3.94
-0.4
Veg and fruits
Lao
-0.06
0.61
53.79
0.61
25.45
-14.65
88
Import
price
Other crops
Vietnam
-0.46
0.13
-0.33
0.13
0.81
-1.97
Other crops
Indonesia
0.2
0.19
1.1
0.19
0.19
-0.02
Other crops
Philippines
16.77
6.16
321.14
6.16
17.57
-1.16
Other crops
Singapore
2.76
5.18
3.03
5.18
2.35
-0.11
Other crops
Thailand
8.07
3.13
35.97
3.13
4.83
-3.68
Other crops
Malaysia
-6.86
-1.92
17.98
-1.92
11.64
-10.49
Other crops
Cambodia
3.6
3.37
159.56
3.37
9.6
-0.05
Other crops
Lao
1.06
1.14
2.93
1.14
1.82
0.19
Other food products
Vietnam
0.23
0.11
0.42
0.11
0.34
-0.08
Other food products
Indonesia
0.09
-0.04
2.44
-0.04
3.82
-2.04
Other food products
Philippines
-0.26
0.28
0.73
0.28
-0.91
Other food products
Singapore
4.39
0.01
5.13
0.01
0.76
-0.14
Other food products
Thailand
0.69
-0.4
1.91
-0.4
3.42
-3.11
Other food products
Malaysia
4.38
-0.65
10
-0.65
0.91
-0.45
Other food products
Cambodia
-2.21
-0.24
1.34
-0.24
8.59
-5.38
Other food products
Lao
-0.62
0.03
8.66
0.03
4.46
-2.51
Table 6.3 also shows three cases of goods that do not follow the expected trend,
which are Malaysias other food products, Laos vegetables and fruits,
Indonesias sugar cane. Firstly, Malaysias other food products production
experience a moderate increase, while its producer price and export price
decrease. Increase in output of other food products can be attributed to both
increased export demand and domestic demand. The domestic demand for other
food products increases partly as a result of producer price of these products
declining by 4.38%. The export demand increase because the relative export
price of Malaysias products fall following ASEANs partners reducing tariffs
on Malaysias other food products. This decreased price triggers agents in
many ASEAN markets to switch sourcing in favour for products from Malaysia.
This enables Malaysia to increase its other food products exports to Thailand
by 92%, to Indonesia by 48%, to the Philippines by 12% for example.
The second unusual case is Laos vegetable and fruit. Its production remains
almost unchanged while its import price decreases by 14% and its imports of
these goods increase by 24%. The unchanged output is due to Lao increasing its
aggregate exports of this good by 54%. Particularly, Laos exports of vegetables
and fruits to Thailand increase by 171% and Vietnam by 9% following these two
countries reduction of tariffs for its ASEAN partners. This large increase offsets
89
decreased domestic demand, thus leading to unchanged output. Another unusual

case is Indonesias sugar cane. Its production decreases although its import price
is almost unchanged. The decrease in sugar cane production is attributed to the
contraction of the downstream sector, i.e. sugar, which results in a decrease in
input demand, where sugar cane is the key input.
In brief, the tariff reforms enable Vietnam to significantly increase its exports of
oilseed and sugar, in which Vietnam does not have a comparative advantage.
With respect to import composition, Vietnam significantly increases its imports
of sugar, especially from Thailand and slightly increases its imports of other
crops and vegetable oil. Except for sugar imports, there is not any significant
change in imports of other agricultural goods. This is because the price changes
are small due to the low tariff cuts and low share of intra-ASEAN trade. In the
case of vegetable oil for example, the increase in imports from ASEAN member
is offset by a reduction in imports from non-ASEAN members, for example from
China. Vietnams exports of paddy rice and processed rice increase only slightly
in this Scenario because intra-ASEAN rice tariffs remain unchanged in this
Scenario. It is also due to Vietnams exports of rice to a few ASEAN members
increasing, but its rice exports to non-ASEAN members declining. This result is
due to Vietnams export price of rice increasing slightly, relative to the export
price of rice from non-ASEAN competitors. Regarding changes in agricultural
outputs, oilseed production is projected to expand, while vegetable oil production
is projected to slightly contract. Productions of the remaining sectors are
observed to change only slightly.
6.1.3. Change in consumption

Table 6.4 shows descriptive statistics on the change in private households
consumption demand for goods in ASEAN members. The agricultural tariff
reforms are projected to have only a minor impact on consumption patterns. In
Vietnam, there is a minor increase in the consumption of most goods, with the
90
consumption of other crops, vegetable oil and sugar increasing the most, but
the increase is no more than 0.4%. There are possibly two reasons for such minor
increases. Firstly, with regards to the income effect, agricultural tariff reforms
bring about a minor increase in income of 0.05% for Vietnamese private
households. Secondly, with regards to price effects, there are no significant price
effects, as the prices paid by private household for most products changes only
marginally. In Vietnam, there are a few goods which become cheaper, i.e. other
crops and vegetable oil and sugar, as the tariffs on those products are reduced.
The prices of the remaining agricultural products increase slightly, while the
prices of manufacturing goods remain almost unchanged. A similar outcome is
projected for the remaining ASEAN members.
Table 6.4 Summary of changes in private household consumption of 30 goods in
ASEAN members (%)
Countries
Mean
Minimum
Median
Maximum
Vietnam
0.5
-0.09
0.05
0.4
Indonesia
0.02
-0.02
0.42
The Philippines
-0.02
-0.49
0.03
0.22
Singapore
-0.09
-1.77
0.1
Thailand
-0.26
0.03
0.3
Malaysia
0.06
-0.17
0.04
1.06
Cambodia
-0.55
0.03
1.27
Lao
-0.32
0.04
0.14
6.1.4. Welfare outcomes

Figure 16 shows that Vietnam benefits from a gain in welfare, with most coming
from improved terms of trade (TOT). Since approximately a third of Vietnams
exports were agricultural exports in 2007, the improved export price of processed
rice, other food products, vegetable and fruits, and oil seeds are the main
91
contributors to an improvement in Vietnams TOT. In addition, the contribution

of allocative efficiency to welfare gain is not insignificant. There are two
possible explanations for the allocative efficiency gain. Firstly, there is better
allocation of resources among sectors in Vietnam. As a result of tariff elimination,
land, labour and capital will flow from sectors that are initially protected, to the
more efficient sectors. Secondly, tariff reduction allows some producers to gain
access to cheaper sources of imported inputs, thus reducing production cost and
contributing to output expansion, for example other food products, including
processed food.
An additional key outcome of Scenario 1 is that agriculture and food

liberalisation brings about a welfare gain for all ASEAN members, but there
would be an unequal gain. Malaysia and Thailand are projected to have the
largest gain. With regards to Malaysia, more than half of Malaysias welfare
gain comes from allocative efficiency gain. There are two explanations for this
gain. Firstly, Malaysia has the widest range of agricultural tariffs among ASEAN
member, with the peak being at 137%. Therefore, the elimination of such a peak
tariff leads to improved resource allocation. In addition, Malaysia tends to have
the largest amount of free tariff lines by 2015. Hence, the wider and deeper tariff
cut levels enables Malaysia to source cheaper inputs, thus increasing domestic
production of food processing sectors. As a result, the outcome of Scenario 1
shows that 20 out of 30 sectors in Malaysia are projected to expand (data is not
shown), as opposed to 13 out of 30 in Vietnam. Although Thailand has lower
allocative efficiency gains than Malaysia, Thailands terms of trade gain is
92
approximately double that of Malaysia. Thailands TOT improvement is

attributed to the increased export prices of rice and other crops. These goods
account for approximately half of Thailands TOT gains.
Vietnam
Indonesia
Philippines
Singapore
Thailand
Malaysia
Cambodia
Lao
ROW
-40
-20
20
40
60
80
100
Million $US
Allocative efficiency
Term of trade
Figure 6.1: Welfare outcomes of Scenario 1
93
6.2. Scenario 239

6.2.1. Impacts of manufacturing tariff
reforms on Vietnam
6.2.1.1. Import prices
Table 6.5 displays changes in the composite import prices of imported goods.
Although Vietnams tariffs on petroleum and chemical products and motor and
transportation goods reduce the most, the import prices of these goods fall by less
than 4%. The composite import price of each good is the sum of trade-weighted
changes in import prices from all Vietnams suppliers of this good. This
computation method takes into consideration the importance of the suppliers, as
the weight is based on the share of each supplier. In the 2007 baseline, ASEAN
members accounted for 30% of Vietnams petroleum and chemical imports, but
they accounted for only 6% of Vietnams motor and transportation imports.
Therefore, even though Vietnam greatly reduces its import tariffs for ASEAN
members, the composite import price of these goods falls only slightly. Likewise,
the composite import price of textiles falls only by 0.22%. This minor decrease is
because ASEAN members accounted for only 7% of Vietnams total textile
imports, in comparison with China (28%), South Korea (23%) and the rest of the
world (ROW) 27%. Therefore, Vietnams reduction of intra-ASEAN tariffs on
textiles has little influence on the composite import price of this good. As far as
39
In Scenario 2, ASEAN members reduce their intra-ASEAN manufacturing tariffs to 2015 levels. From
this point forward, manufacturing tariff reduction refers to this simulation. Results in Scenario provide
updated data which is used as the starting point for Scenario 2 simulation. Therefore, Scenario 2 results
are incremental to Scenario 1, and changes in Scenario 2 refer to a comparison with Scenario 1 results.
94
the import prices of agricultural goods are concerned, changes are small because
these tariffs are unchanged in this scenario.
Table 6.5: Changes in Vietnams agricultural prices, production and trade
following intra-ASEAN manufacturing tariff reforms (%)
Goods
Production
Domestic
price
Aggregate
exports
Composite
export
price
Aggregate
imports
Composite
import
price
3.28
0.09
3.96
0.09
1.57
-0.48
Metal
2.6
-0.05
4.98
-0.05
0.72
-0.13
Textile and clothing
1.9
-0.18
2.06
-0.18
1.69
-0.22
Equipment
1.35
-0.1
2.16
-0.1
1.18
-0.42
Services
0.41
0.36
-1.22
0.36
0.82
0.01
Processed rice
-0.13
0.19
-0.21
0.19
-1.44
0.72
Paddy rice
-0.17
0.02
-0.17
0.02
-0.01
-0.18
-0.07
3.07
-0.07
2.12
-1.18
-0.2
0.04
-0.23
0.04
-0.16
0.03
-0.26
0.36
-0.84
0.36
0.09
0.04
Extraction
-0.31
0.36
-0.17
0.36
0.56
-0.01
Other food products
-0.63
0.24
-0.84
0.24
-0.08
0.07
Oil seeds
-0.99
0.13
-0.57
0.13
-0.72
0.02
-1.2
0.23
-0.75
0.23
1.4
-0.92
Forestry
-1.39
0.66
-2.82
0.66
-0.45
0.33
Meat products
-1.74
0.51
-3.96
0.51
0.97
0.02
Vegetable oil
-2.34
0.78
-3.83
0.78
0.24
0.07
-2.85
-0.75
6.37
-0.75
2.85
-3.88
Metal products
Other crops
Paper
6.2.1.2. Producer prices

Table 6.5 shows that the producer prices of all agricultural and food processed
goods increase marginally. The small increases in these prices are primarily due
to an increase in the unskilled labour wage. Manufacturing tariff reforms enable a
reduction in the cost of some manufacturing inputs for agricultural production,
such as fertiliser, which is included in petroleum and chemical products.
However, such a decline is offset by an increase in the unskilled labour wage,
due to an increase in labour intensive manufacturing production (especially
95
textiles). This increased production causes the demand for unskilled labour to
rise, thus pushing up the labour wage.
The producer prices of all manufacturing goods are estimated to fall minimally
(see Table 6.5). These small reductions imply that the tariff reforms have little
effect on reducing intermediate input costs for the domestic production of several
manufacturing goods, as discussed previously. Taking textiles as an example,
the producer price declined by only 0.18%. This decline is due to the minor
decline in production costs, of which textile inputs accounts for 59%. This textile
input price decreases by only 0.21% following the tariff reforms. In response to
lower production cost, production of textile expands slightly. In the meantime,
the domestic demand and export demand for textile increase. As a result of
adjustments of both supply and demand, the equilibrium price decreases slightly
by 0.18%.
6.2.1.3. Exports
Vietnam is projected to increase its exports of most manufacturing goods
following the manufacturing tariff reforms (see Table 6.5). Exports of textile and
crude oil are worthy of attention because these goods are Vietnams key exports
and they accounted for almost 50% of Vietnams total exports in 2007. The
exports of textiles increase by 2%, while exports of extraction, including crude
oil remain unchanged. Vietnams textile exports to Thailand increase by 83%, to
Cambodia by 46% and to the Philippines by 27%, in comparison with the
baseline exports to each country. Despite of such large increases in proportionate
terms, Vietnams aggregate exports of textiles increase marginally because
ASEAN markets accounted for only 3% of Vietnams textile exports in 2007as
opposed to 36% (USA) and 36% (the EU).
Exports of petroleum and chemical products are projected to increase the most
among manufacturing goods, namely 6%. Further examination shows that
Vietnams exports of petroleum and chemical products to Thailand and Indonesia
96
increase by 101% and 18% in comparison with the base values, respectively.
This increase is mainly due to these two countries switching their sourcing of
these goods in favour of ASEAN partners, following their liberalisation.
Moreover, Vietnams exports of petroleum and chemical products to the EU and
the USA 40, which are Vietnams key buyers of these goods, are also each
projected to increase by 4%. This increase is due to Vietnams lower export price
which causes the EU countries and the USA to switch their sourcing in favour of
Vietnams products.
6.2.1.4. Imports
The manufacturing tariff reforms result in a small increase in imports of most
goods into Vietnam (see Table 6.5). Imports of petroleum and chemical products,
motor and transportation and textiles and clothing register the largest increase,
but the increase is less than 3%. It is worth mentioning the imports of petroleum
and chemical products due to two reasons. Firstly, imports of these goods
accounted for the largest share of Vietnams imports in 2007, namely 27%.
Secondly, fertilizers which are included in these products accounted for a large
share of production costs of many crops, including paddy rice. Change in import
demand of these products is due to output effect and price effect. Regarding
output effects, several sectors that use petroleum and chemical products as
intermediate inputs, such as other crops and paddy rice (in which fertilisers are
a key input), are modelled to contract in this scenario. The production of
petroleum and chemical products, in which petroleum and chemicals are the key
intermediate inputs, also reduce slightly. These factors reduce the demand for
petroleum and chemical products. On the other hand, following Vietnams tariff
reduction for imports of these products from ASEAN partners, the aggregate
import price falls, thus causing the domestic agents to switch sourcing away from
domestic products in favour of imported products from these partners.
Eventually, this price effect outweighs the output effect, thus leading to an
increase in the imports of these products.
40
The EU and the USA account for 21% and 10%, respectively.
97
6.2.1.5.
Vietnams trade balance
Figure 6.2 shows that Vietnams total trade balance falls irrespective of an
increase in the export of several manufacturing goods. Only the extraction and
textile sectors register an increase in their trade balance. Petroleum and chemical
products and the services trade balances fall the most, indicating that imports
increase greater than exports.
200
US$ Million
100
0
-100
-200
-300
-400
-500
Figure 6.2: Changes in Vietnams trade balance following intra-ASEAN

manufacturing tariff reforms
6.2.1.6. Production
There are small changes in the outputs of the manufacturing sectors, including
metal products, textiles and petroleum and chemical products (see Table 6.5).
The textile sectors are worthy of attention due to its large share of Vietnams
total exports in 2007. Textile output is estimated to increase slightly due to a
small increase in the export demand for textiles (as discussed in section 6.2.1.3)
and a small increase in the domestic demand for textiles (further discussed in
section 6.2.3). In contrast to the textile sector, petroleum and chemical products
output is projected to contract the most among the manufacturing sector, mainly
due to a decrease in domestic demand for petroleum and chemical products (see
98
Table 6.5). This result can be explained in two ways. Firstly, following
Vietnams tariff reduction for petroleum and chemical products, the import price
falls and thus, domestic agents substitute away from local products in favour of
imported products. Secondly, domestic demand for petroleum products, used as
intermediate inputs, is projected to decline. This decline is due to the contraction
of some manufacturing sectors, notably the petroleum and chemical sectors,
together with agricultural sectors (in which fertiliser accounts for a significant
share of input cost), such as coffee and pepper production, included in the other
crops sector. Although Vietnam can increase its export of these goods by 6%,
the decrease in domestic demand outweighs the increase in export demand, thus
leading to a fall in domestic production.
As far as agricultural production is concerned, Table 6.5 shows that most
agricultural sectors contract in this scenario. The production of vegetable oil
reduces the most, followed by meat products, but always less than 2%. Paddy
rice and processed rice production remain almost unchanged. Such small changes
in paddy rice and processed rice output can also be attributed to a minor decline
in both domestic and export demand for these goods. The small change in private
household demand, for example, is due to minor change in the price of rice paid
by private households and the slight decrease in regional income. This decrease
leads to reduced demand for agricultural products. Note that the private
households income elasticity of demand is lower for agricultural goods than for
manufacturing goods.
In brief, manufacturing tariff reforms have only small impacts on Vietnams
production patterns. Vietnam increases its production of labour intensive goods
(i.e. textiles) and reduces its production of petroleum and chemical products
following liberalization. There are minor changes in the remaining
manufacturing sectors. In regards to Vietnams trade pattern following the tariff
reforms, Vietnam still specialises in exporting crude oil, textiles and equipment.
As for its trade balance, Vietnams total trade balance would fall largely due to
99
decrease in the trade balance of some manufacturing goods, notably petroleum

and chemical products and motor and transportation.
6.2.2. Impacts of manufacturing tariff

reforms on ASEAN members
6.2.2.1. Changes in prices, production and
trade of selected goods in ASEAN
member countries
An interesting outcome of Scenario 2 is that the motor and transportation sectors
of all ASEAN members, except Vietnam, expand following the manufacturing
tariff reforms 41, although these countries do not have a comparative advantage in
these goods (see Table 6.6.). Thailands motor and transportation production is
an example. Thailand is the largest exporter of motor and transportation among
ASEAN members. Thailands increase in its production of these goods is
expected to have a significant impact on trade and production of the same goods
in some ASEAN members. This belief is based on Thailands intra-ASEAN
tariffs on these goods being the highest among ASEAN members, according to
the GTAP tariff database. Following intra-ASEAN tariff reforms, Thailands
output of motor and transportation is projected to increase by 10%. This increase
is largely due to an increase in export demand. In particular, Thailands exports
to Vietnam increase by 39%, Indonesia by 24%, the Philippines by 27% and Lao
by 49%. An examination of Thailands exports of motor and transportation to its
ASEAN partners shows that the increase in exports is largely driven by AFTA
preferential tariffs since Thailands ASEAN partners switch their sourcing of
41
In this study, intra-ASEAN manufacturing tariff reforms were found to result in increasing intraindustrial trade of motor and transportation goods among ASEAN members. This increase explains the
improved trade balance of these goods for Indonesia, the Philippines, Thailand, Singapore and Lao. Such
expansion in intra-industrial trade can be attributed to taste difference, different quality, a broad
aggregation and different stages along the vertical integration within the production of motor and
transportation products. However, further analysis in intra-industrial trade goes beyond the scope of this
study.
100
motor and transportation from non-ASEAN members in favour of Thailands

goods.
Table 6.6: Changes in prices, production and trade of selected goods following
intra-ASEAN manufacturing tariff reforms in ASEAN members (%)
Goods
Countries
Motor and
transportation
Vietnam
-0.18
-0.07
3.07
-0.07
2.12
-1.18
Indonesia
3.41
0.21
23.34
0.21
3.41
-1.32
18
0.08
51.81
0.08
6.17
-1.43
Singapore
1.23
0.34
2.29
0.34
0.99
-0.02
Thailand
3.6
-0.84
10.29
-0.84
9.45
-4.95
Malaysia
2.37
0.13
8.49
0.13
1.26
-0.22
Cambodia
1.71
-1.11
21.26
-1.11
4.16
-2.9
362.44
-10.61
1374.47
-10.61
12.64
-16.5
Vietnam
1.35
-0.1
2.16
-0.1
1.18
-0.42
Indonesia
0.1
0.18
0.74
0.18
0.69
-0.22
Philippines
-1.59
0.25
-1.85
0.25
-0.35
-0.06
Singapore
-0.92
0.31
-0.82
0.31
-0.11
0.04
Thailand
-0.25
0.07
0.03
0.07
1.56
-0.6
Malaysia
-0.67
0.2
-0.68
0.2
-0.01
0.05
Cambodia
6.24
-0.12
56.79
-0.12
3.34
-0.62
Lao
7.44
0.62
41.3
0.62
2.08
-0.94
Vietnam
-0.17
0.02
-0.17
0.02
-0.01
Indonesia
0.01
0.12
-1.03
0.12
0.63
Philippines
-0.05
0.29
-2.62
0.29
1.27
0.03
Singapore
-0.13
0.03
-0.19
0.03
-0.66
0.01
Thailand
-0.1
-0.11
0.95
-0.11
-1.53
0.17
Malaysia
-0.06
0.07
-0.46
0.07
0.14
0.01
Cambodia
-0.06
0.28
-2.41
0.28
1.11
0.05
0.37
3.3
-26.79
3.3
17.9
-0.07
Vietnam
-0.13
0.19
-0.21
0.19
-1.44
0.72
Indonesia
0.02
0.18
-0.79
0.18
0.11
0.14
Philippines
-0.05
0.31
-1.48
0.31
0.38
0.14
Singapore
-0.05
0.26
-1.15
0.26
-0.36
0.07
Thailand
-0.12
0.08
-0.14
0.08
0.06
Malaysia
-0.04
0.14
-0.58
0.14
0.04
0.1
Cambodia
-0.05
0.34
-1.63
0.34
0.7
0.07
0.08
3.11
-14.2
3.11
8.51
0.03
Philippines
Lao
Equipment
Paddy
rice
Lao
Processed
rice
Lao
Production
Domestic
price
Aggregate
exports
101
Composite
export
price
Aggregate
imports
Composite
import
price
Similar to Thailand, Indonesias output of motor and transportation increases due

to an increase in export demand (23.34%) which is attributed to two factors. The
first is an increase in the import demand for these goods in many ASEAN
partners, especially Thailand (9.45%), Lao (12%) and the Philippines (6%). The
second factor is that ASEAN partners divert sourcing in favour of ASEAN goods
following the intra- ASEAN tariff reforms. However, Indonesia differs from
Thailand in that while Thailands domestic price of these goods decreases,
Indonesias domestic price increases slightly following liberalisation. It is
necessary to mention this difference because a change in producer price and
export price mainly contributes to TOT gains and therefore welfare gains (further
discussed in section 6.2.4). This difference is due to Thailands initial tariffs on
motor and transportation being the highest, compared with the remaining
ASEAN members. Hence, Thailands tariff reduction enables it to greatly reduce
its production cost of motor and transportation. Thailands composite import
price reduces by 4.95%, thus leading to the input cost of motor and transportation
being reduced by 3.71%. Because motor and transportation parts account for a
significant share of the motor and transportation sectors cost, the decreased cost
of this key input enables Thailand to reduce its production cost of motor and
transportation, and thus reduce the producer export price by 0.84%. In the case
of Indonesia, its initial tariffs on motor and transportation are much lower
compared with Thailands tariffs. Therefore, Indonesias tariff cuts have little
impact on reducing the production costs of motor and transportation intermediate
inputs for production in the same sector.
Noticeably, Laos exports and production of motor and transportation show a

large increase by 362% and 1,374%, respectively. These increases arise from
strong import demand from ASEAN partners, notably Thailand and Indonesia.
Despite these substantial increases in percentage terms, Laos production of these
goods (US$16 million) is much smaller than Thailands (USD $35 605 million)
and Indonesias production (US $17 251 million) both in the simulated and base
line scenario.
102
It is necessary to note that there are small changes in production and trade in
equipment in ASEAN members (see Table 6.6.) The equipment sector is worth
mentioning for two reasons. Firstly, this sector accounts for a significant share of
the original ASEAN members exports. Secondly, four ASEAN members have a
comparative advantage in exports of equipment. This small change in the
production of equipment in Malaysia, for example, can be explained in two ways.
Firstly, the initial tariffs on its ASEAN partners are low. When low initial tariffs
are eliminated, it results in minor changes in import prices. This minor change
leads to a small change in import and export demand and domestic production.
Secondly, Malaysias equipment is largely exported to non- ASEAN members,
with Chinas, the EUs and USAs share accounting for 61% in comparison to 15%
of ASEAN markets. Therefore, even a large increase in the exports to ASEAN
markets has little impacts on Malaysias aggregate exports of this good.
As far as agricultural production is concerned, there are small changes among

ASEAN members. Table 6.6 shows that paddy and processed rice production for
most ASEAN members decreases marginally. This result is due to a small change
in demand for these goods, which will be further discussed section 6.2.3.
6.2.3. Changes in consumption

Table 6.7 shows that in Indonesia, the Philippines, Singapore and Malaysia,
consumption of most goods on average increases only slightly. While agricultural
tariff reforms (Scenario 1) lead to a mixed change in consumption, the
manufacturing tariff reforms lead to an increase in the consumption of most
goods. This difference is due to manufacturing tariffs reforms bringing about
larger incomes, thus enabling private households in these countries to increase
their consumption.
103
Table 6.7: Summary of % changes in private household consumption of 30 goods

in ASEAN members
Countries
Number of
goods
Mean
Minimum
Maximum
Vietnam
30
-0.1
-0.14
0.54
Indonesia
30
0.07
0.02
0.22
Philippines
30
0.13
0.06
0.31
Singapore
30
0.48
0.02
0.72
Thailand
30
0.06
-0.1
0.52
Malaysia
30
0.13
0.04
0.3
Cambodia
30
0.09
-0.11
Lao
30
0.16
-0.38
3.78
The situation in Vietnam, Cambodia and Lao is slightly different from the
original ASEAN members that there is a mixed change in the consumption of
goods. In Vietnam, the consumption of manufacturing goods increases
marginally (data are not shown.) following the tariff reforms. This increase is due
to the price of some manufacturing goods being reduced, mainly due to a
decrease in the import price following the manufacturing tariff reforms. Despite
of a decrease in private households income, the decrease in prices leads to
substitution effect outweighs income effect, thus resulting in an increase in
consumption of these goods. Meanwhile, the consumption of agricultural goods
decreases slightly due to two reasons: an increase in prices of agricultural goods
(see section 6.2.1.2.) and a decrease in the incomes of private households. It is
helpful to mention that private households income in Vietnam declines while
that in the original members increases following the manufacturing tariff reforms.
The decline is due to a decline in regional incomes.

Figure 6.3 shows that only Vietnam experiences a welfare loss in this Scenario,
and other ASEAN countries experience a welfare gain. Vietnams welfare loss is
mainly due to a loss in allocative efficiency. Changes in allocative efficiency is
partially contributed to by changes in production tax and import tax (Huff &
104
Hertel, 2000). Most of Vietnams reduction in import tax is attributed to tariff

loss for petrol and chemical products (i.e. manufacturing of refined petroleum
products, basic chemicals and rubber and plastic products). These goods account
for almost a third of Vietnams total import value, of which Vietnam sourced 33%
from ASEAN members, 20% from China and the remainder from rest of the
world in 2007. These goods are also subject to Vietnams largest tariff cuts.
Following this manufacturing tariff reduction, Vietnam increases its imports of
petrol and chemical products from ASEAN by 14%. In particular, imports from
Thailand and Singapore are predicted to increase significantly by 77% and 33%,
respectively, while those from China decline by 18% compared to the baseline.
This trade diversion occurs because in this Scenario Vietnam eliminates its tariffs
on chemical and petroleum imports from Thailand and Singapore 42 and maintain
tariffs on Chinas goods. This tariff preference makes the import price from
ASEAN members to fall relative to that from China and non-ASEAN members,
thus encouraging Vietnamese agents to switch their sourcing from China to
Thailand and Singapore.
Vietnam
Indonesia
The Philippines
Singapore
Thailand
Malaysia
Cambodia
Lao
ROW
-200
200
400
600
800
1000
$USD Millions
Allocative efficiency
Term of trade
Figure 6.3: Welfare outcomes of Scenario 2

42
Vietnams initial tariffs on chemical and petroleum imports from Thailand, Singapore and China are
8.73%, 14.38% and 9.36%, respectively.
105
The outcomes of Scenario 1 and 2 are similar to the extent that welfare gains are
unequal among AFTA members (see Figure 6.3). The original ASEAN members
welfare gains far exceed the new members gains. Specifically, Singapores gain,
in terms of trade, is projected to be $USD 794 million, compared to Cambodias
gain of $USD 4 million and Laos gain of $USD 15 million. Sectors that make
significant contribution to TOT improvements are equipment in the Philippines,
Singapore, Malaysia, and Thailand, petroleum and chemical and services in
Singapore, Malaysias equipment and services, Indonesias textile and clothing
and extraction. The gains in allocative efficiency for Thailand, the Philippines
and Singapore are mainly derived from the motor and transportation sector due to
production expansion in these three countries.
106
6.3. Scenario 3 and 443

6.3.1. Changes in prices, trade and
production of rice in ASEAN members
6.3.1.1. Rice imports
The Philippines and Malaysia show the largest increase in imports of processed
rice by 17% and 16%, respectively, following their rice tariff reductions to 2015
levels. These imports are further increased by 52% and 19% in Scenario 4, when
these two countries completely liberalise their rice trade (see Table 6.8). These
increases are due to the fact that import prices of paddy rice and processed rice
from ASEAN partners fall, relative to the price of their domestically produced
rice following ASEAN rice liberalisation. Specifically, the composite import
prices in the Philippines and Malaysia fall by 34% and 28%, respectively, in
Scenario 4, as shown in Table 6.8. Hence, cheaper import prices cause agents in
these two countries to shift their sourcing away from locally produced rice in
favour of imported rice. Since these two countries import rice mainly from
ASEAN partners, their aggregate imports of rice increase.
Vietnams processed rice imports increase by only 1.56% in Scenario 3, but

increase by 16% in Scenario 4 (complete rice liberalisation), when all ASEAN
members are modelled to reduce their rice tariffs to 0%. The impacts of increased
imports on domestic production will be further discussed in section 6.3.1.3.
43
Results in Scenario 2 are updated data which is used as the starting point for Scenario 3 simulation.
Therefore, Scenario 3 results are incremental to Scenario 2, and changes in Scenario 3 refers to an
comparison with Scenario 2 results. The results for Scenario 4 are similar.
In Scenario 3, intra-ASEAN tariffs on paddy rice and processed rice are reduced to 2015 levels (also
named as partial rice trade liberalization). Only Thailand, Malaysia and the Philippines rice tariffs are
reduced to the agreed 2015 levels as stated in the CEPT. Indonesias rice tariff in Scenario 3 is
unchanged as mentioned in Section 4.1. The remaining ASEAN memberscurrent rice tariffs already
equate to 2015 levels, therefore they remain unchanged in Scenario 3.
In Scenario 4, all ASEAN members reduce their rice tariffs from 2015 levels to 0% for ASEAN partners.
107
Vietnams paddy rice imports increase by only 5% in Scenario 3, but increases

by 23% in Scenario 4. This large increase in Scenario 4 is due to an increase in
demand for paddy rice, which is used for processed rice production. Further
examination of import sourcing shows no changes in paddy rice imports from
ASEAN members because Vietnam imported paddy rice primarily from China in
the base scenario. Specifically, this nil bilateral trade flows for rice between
Vietnam and its ASEAN partners remain unchanged following ASEAN rice
trade liberalization.
Table 6.8: Changes in aggregate imports and composite import price of

processed rice and paddy rice for ASEAN members
Goods
Countries
Aggregate Imports
Sce 3
Processed
rice
Sce 3+4
Sce 3
Sce 4
Sce 3+4
Vietnam
1.56
16.46
18.02
0.05
-3.26
-3.21
Indonesia
-1.03
15.46
14.43
0.45
-6.23
-5.78
Philippines
17.27
52.48
69.74
-9.51
-24.50
-34.01
Singapore
-0.04
-0.08
-0.12
0.19
0.72
0.91
Thailand
4.20
2.43
6.63
-1.35
-0.14
-1.50
Malaysia
16.00
19.01
35.00
-13.20
-15.19
-28.39
Cambodia
3.85
10.41
14.26
-1.44
-3.82
-5.26
-0.32
6.47
6.15
0.13
-2.43
-2.29
Vietnam
5.57
23.44
29.00
0.00
0.01
0.01
Indonesia
0.20
-2.96
-2.76
0.00
-0.18
-0.17
Philippines
-10.08
-14.43
-24.51
0.01
-3.17
-3.16
Singapore
-0.11
-0.36
-0.48
0.15
0.53
0.68
Thailand
12.54
5.95
18.49
-2.05
0.00
-2.06
Malaysia
63.12
73.44
136.56
-13.28
-15.96
-29.24
Cambodia
-2.44
7.41
4.97
0.52
-1.43
-0.91
Lao
-1.34
16.80
15.46
0.29
-3.07
-2.78
Lao
Paddy
rice
Sce 4
Composite import price
6.3.1.2. Rice exports

Table 6.9 shows that Vietnams processed rice exports increases by only 5% in
Scenario 3, but increase by 18% in Scenario 4 when ASEAN partners further
reduce their tariffs from 2015 levels to 0%. The moderate increase in Scenario 3
is due to an increase in exports to ASEAN partners, but exports to non-ASEAN
countries decline. Specifically, Vietnams exports to the Philippines and
Malaysia increase by 17% and 20%, respectively, while exports to the EU, USA,
108
and Sub-Sahara Africa fall by around 2.5% in Scenario 3. However, when

ASEAN countries reduce their rice tariffs from 2015 level to 0%, Vietnams
exports to the Philippines, Malaysia, Indonesia and Thailand increase by 18%.
Especially, Vietnams exports of processed rice to the Philippines and
Indonesia 44 increase by 50% and 10%, respectively. These increases offset the
decrease in the exports to non-ASEAN countries, and leads to a net increase in
processed rice exports. It is helpful to note that the large increase in exports to
ASEAN partners is mainly due to their increased import demand and their shift
sourcing in favour of rice imports from Vietnam.
Table 6.9: Changes in aggregate exports and composite export price of processed
rice and paddy rice for ASEAN members
Goods
Countries
Aggregate exports
Sce 3
Processed
rice
Paddy
rice
Sce 4
Composite export price
Sce 3+4
Sce 3
Sce 4
Sce 3+4
Vietnam
4.91
17.94
22.85
0.63
2.53
3.16
Indonesia
-0.25
3.23
2.98
0.03
-0.50
-0.47
Philippines
10.21
34.10
44.31
-1.88
-5.41
-7.30
Singapore
-0.49
1.15
0.66
0.08
0.31
0.40
Thailand
1.14
3.91
5.05
0.23
0.81
1.04
Malaysia
16.70
23.88
40.58
-2.75
-3.16
-5.90
Cambodia
1.39
0.92
2.31
0.03
0.01
0.04
Lao
0.28
3.07
3.35
0.01
-0.01
0.00
Vietnam
-6.77
-23.77
-30.54
0.81
3.26
4.07
Indonesia
14.07
31.82
45.89
0.03
-0.61
-0.57
Philippines
20.62
73.39
94.00
-2.06
-5.94
-8.00
Singapore
-0.65
-0.72
-1.37
0.03
0.11
0.14
Thailand
-0.94
-5.31
-6.25
0.30
1.06
1.36
Malaysia
24.34
32.05
56.39
-2.70
-3.40
-6.09
Cambodia
37.35
53.72
91.07
0.04
0.01
0.04
2.98
0.88
3.86
0.02
-0.01
0.01
Lao
44
The Philippines and Indonesia wereVietnams largest importing partners accounting for 62% of
Vietnams processed rice exports in 2007.
109
In Scenarios 3 and 4, most ASEAN members, including Vietnam, the Philippines,

Indonesia and Malaysia, substantially increase their processed rice exports
following their rice tariff reductions (see Table 6.9). This finding is consistent
with the findings of Strutt et al (2010) and Urata & Kiyota (2003) that if an
industry is initially protected by high tariffs, then it will expand exports
following its tariff reduction. There are several reasons for these responses.
Following the Philippines tariff reduction, its producer price and export price
both decrease, while the prices in Vietnam increase (see Table 6.9). These
decreased prices lead to the Philippines rice exports, notably to the EU,
becoming cheaper relative to Vietnams rice. Agents in the EU, therefore, switch
their sourcing away from Vietnams rice in favour of the Philippines rice.
Therefore, the Philippines can considerably increase its processed rice exports to
non-ASEAN countries, in contrast to Vietnam.
With regard to exports of paddy rice, Vietnams exports of paddy rice decline by
6% and 24% in Scenarios 3 and 4, respectively. The larger decline in Scenario
4 is due to the increased export price. According to the base data, Vietnams
export of paddy rice was small, namely US$1.29 million compared to US$ 94
million for Thailand. Vietnams paddy rice exports were mainly sold to the EU
and ROW in the base data. Therefore, when its export price increases, these
partners substitute away from Vietnams paddy rice in favour of other suppliers
who offer lower prices, for example the Philippines, Malaysia, Indonesia and
non-ASEAN countries such as India. Specifically, Table 6.9 shows that the
Philippines and Malaysias exports of paddy rice increase by more than 91%
when Scenario 3 and 4 are taken together.
6.3.1.3. Rice production and producer

prices
In Vietnam, both paddy rice and processed rice production increase minimally
following ASEAN partial rice liberalisation in Scenario 3. However, its rice
output increase by 5-6% in Scenario 4 (see Table 6.10). The larger increase in
110
rice output in Scenario 4 is in response to increased export demand. In Scenario 4,

increased export demand can offset the decreased domestic demand for
processed rice, and causing domestic production to rise. The decreased domestic
demand for local processed rice is due to cheaper imported rice, following
Vietnam removing its rice tariffs.
Table 6.10: Changes in production and producer prices of processed rice and
paddy rice for ASEAN members
Goods
Countries
Production
Sce 3
Processed
rice
Paddy
rice
Sce 4
Producer price
Sce 3+4
Sce 3
Sce 4
Sce 3+4
Vietnam
1.53
5.77
7.31
0.63
2.53
3.16
Indonesia
0.06
-0.88
-0.82
0.03
-0.50
-0.47
Philippines
-4.06
-12.90
-16.96
-1.88
-5.41
-7.30
Singapore
0.01
0.10
0.10
0.08
0.31
0.40
Thailand
0.53
1.85
2.38
0.23
0.81
1.04
Malaysia
-6.24
-7.73
-13.97
-2.75
-3.16
-5.90
Cambodia
-0.05
-0.21
-0.26
0.03
0.01
0.04
Lao
0.00
-0.05
-0.05
0.01
-0.01
0.00
Vietnam
1.34
5.03
6.37
0.81
3.26
4.07
Indonesia
0.06
-0.81
-0.75
0.03
-0.61
-0.57
Philippines
-3.89
-12.34
-16.22
-2.06
-5.94
-8.00
Singapore
0.09
0.36
0.45
0.03
0.11
0.14
Thailand
0.49
1.64
2.13
0.30
1.06
1.36
Malaysia
-6.32
-8.25
-14.57
-2.70
-3.40
-6.09
Cambodia
0.04
-0.01
0.03
0.04
0.01
0.04
Lao
0.01
-0.02
-0.01
0.02
-0.01
0.01
The situations in Malaysia and the Philippines are in contrast to Vietnam. In the
Philippines, for example, its paddy and processed rice production falls by16%
under complete rice trade liberalization. This decrease is mainly due to a large
decrease in domestic demand for local rice, since imported rice becomes cheaper
relative to domestic rice, thus encouraging agents to shift their sourcing away
from domestic rice. The decreased domestic demand causes production to
contract despite a large increase in the export demand for processed rice as
discussed in section 6.3.1.2.
111
Unlike the Philippines and Malaysia, Indonesias rice production shows a minor
change even in Scenario 4 since Indonesias rice tariffs are lower than the
Philippines. Indonesian agents purchase rice mainly from domestic markets for
their countrys usage and Indonesia has a higher level of rice self-sufficiency.
According to the GTAP base data, imported rice accounted for a smaller share of
total private household demand for rice in Indonesia (7%) than in the Philippines
(24%). Therefore, a decreased import price following Indonesias rice
liberalisation has little impact on reducing the rice price paid by Indonesian
private households. This minor decrease in price, in turn, has little impact on
increasing the private households demand for rice consumption.
The producer price of processed rice in Vietnam increases slightly in line with
the export price in Scenarios 3 and 4 while these prices in Malaysia, the
Philippines and Indonesia decrease moderately. The producer prices in these
three countries fall further in Scenario 4 than in Scenario 3 when their rice tariffs
become zero. In Malaysia, for example, a decrease in paddy rice output results in
a decreased demand for land for paddy rice production, which causes the price of
paddy rice land to fall. This fall in land price largely contributes to the decreased
production costs of paddy rice production and a decreased producer price to
return to normal profit. Note that land accounts for a large share of the paddy rice
production cost, namely 42% in Malaysia (GTAP database). The decreased price
of paddy rice then leads to a decreased production cost for processed rice,
because paddy rice accounts for the bulk share of processed rice production costs.
112
6.3.1.4. Rice trade balance

Table 6.11: Changes in rice trade balance among ASEAN members
Goods
Processed
rice
Countries
Sce 3
Sce 3+4
Vietnam
80.55
319.01
399.56
Indonesia
3.86
-115.92
-112.06
-117.76
-431.59
-549.35
Singapore
-0.24
-0.87
-1.11
Thailand
43.66
153.03
196.69
Malaysia
-37.5
-54.86
-92.36
Cambodia
-0.24
-1.16
-1.40
0.03
-0.3
-0.27
Vietnam
-0.88
-3.82
29.00
Indonesia
0.18
0.61
-2.76
Philippines
0.04
0.05
-24.51
-0.48
Thailand
-0.66
-4.1
18.49
Malaysia
-1.99
-3.92
136.56
Cambodia
0.49
0.97
4.97
Lao
0.08
0.02
15.46
Philippines
Lao
Paddy
rice
Sce 4
Singapore
Table 6.11 shows that in ASEAN members, except Thailand and Vietnam, the
trade balance falls for processed rice and paddy rice although all ASEAN
members exports of these goods increase in both Scenarios 3 and 4. The trade
balance falls are due to imports for these goods increasing more than their
exports. The Philippines has the largest fall in the rice trade balance because it
has the highest initial rice tariffs, it has the largest fall in import price, and it has
the largest increase in aggregate imports for these goods.
6.3.2. Impacts of ASEAN rice liberalisation

on other agricultural sectors in ASEAN
members
In Vietnam
Most producer prices for agricultural goods increase slightly, but production
declines. This increase is partly due to the increased cost of unskilled labour. As
113
Vietnams production of paddy rice and processed rice (which is labour intensive)
expand, following ASEAN rice liberalisation, the demand for unskilled labour
increases, thus pushing up the unskilled labour wage in Vietnam. This increased
labour wage, in turn, causes the production costs of most labour intensive goods
to rise. One example is the producer price of sugar cane, which increases by 2%
in Scenarios 3 and 4 taken together.
In regards to changes in trade, there are relatively small changes except for
imports of sugar cane/beets. The increase in these imports is due to the import
price of these goods from the Philippines being reduced, following the
Philippines rice tariff reduction. The price of imported sugar cane/beets falls
relative to domestically produced sugar cane, and therefore encourages
Vietnamese agents to increase their imports of sugar cane/beets. However, this
decreased import of sugar cane/beets has little effect on domestic production.
Table 6.12: Changes in prices, production and trade of selected goods in selected
ASEAN member countries (Scenario 3 + Scenario 4)
Countries
Vietnam
The
Philippines
Malaysia
Goods
Production
Producer
price
Aggregate
exports
Composite
export price
Aggregate
imports
Composite
import price
Oil seeds
-3.52
0.94
-4.37
0.94
-0.62
0.04
Sugar cane/beet
-0.49
2.09
-10.85
2.09
5.25
-0.01
Other crops
-3.89
0.69
-4.04
0.69
-0.38
-0.03
Cattle and Animal

products
-0.27
1.94
-7.49
1.94
3.75
-0.12
Vegetables and
fruits
Other crops
2.70
-2.69
8.55
-2.69
-4.14
0.01
4.55
-2.29
11.44
-2.29
-4.05
0.09
Meat products
0.91
-2.16
19.84
-2.16
-8.60
0.01
Vegetable oil
3.25
-0.94
5.52
-0.94
-1.08
-0.05
Cattle and Animal

products
1.21
-3.12
12.66
-3.12
-4.98
0.00
Sugar cane/beet
1.27
-2.75
15.65
-2.75
-7.08
-0.01
Wheat
3.50
-0.56
3.64
-0.56
1.06
-29.24
Other crops
0.48
-0.34
1.75
-0.34
0.06
0.00
Other food
products
Beverage and
tobacco
1.07
-0.50
1.78
-0.50
-0.35
0.02
1.04
-0.95
1.86
-0.95
-0.37
0.02
114
In remaining ASEAN members

Table 6.12 shows that the producer prices for several agricultural goods fall in
countries which initially charged high tariffs on rice imports, such as the
Philippines and Malaysia. In the Philippines, for example, a decrease in rice
production leads to a decrease in the demand for unskilled labour in paddy and
processed rice sector. This results in a decrease in the labour wage. Because most
agricultural goods are labour intensive, a decreased labour wage largely
contributes to a decrease in production costs, expansion in output, and a fall in
the producer prices of agricultural goods.
Another important impact of ASEAN rice liberalisation is that the production of

several other agricultural goods expands while the production of rice falls. For
example, in the Philippines, production of other crops, wheat, vegetables and
fruit are projected to expand by less than 1.5 % in Scenario 3 and further increase
by more or less than 3% in Scenario 4. In Malaysia, the production of wheat is
projected to increase the most, by more than 2% in both Scenarios 3 and 4. The
outputs of downstream sectors also increase slightly, such as other food
products, including processed food in Malaysia and cattle and animal products
in the Philippines. These sectors expand due to increased domestic and export
demand. Malaysias exports of other food products increase by 1% and the
Philippiness exports of meat products increase by almost 20%. Following rice
liberalisation, prices of agricultural raw materials (for example rice, oilseeds and
grains as intermediate inputs) decrease, thus leading to a decrease in production
costs, and expansion in outputs in the employing sectors. This expansion of
production with comparative advantages brings about an allocative efficiency
gain, thus contributing to a welfare gain in the liberalising countries (further
illustrated in section 6.3.5.)
115
6.3.3. Changes in consumption

ASEAN rice trade liberalisation brings about a minor increase in private
household consumption in all ASEAN members. Consumption of rice registers
the largest increase for a few ASEAN members, notably the Philippines and
Malaysia. Table 6.13 shows that consumption of rice in Malaysia and the
Philippines increases by less than 4%. This increase in consumption is due to the
price paid by private households falling largely by 14.82% and 28% in the
Philippines and Malaysia, respectively, following the liberalisation.
Furthermore, it is important to mention that rice trade liberalization contributes to
increased consumption of other agricultural food products in these liberalizing
countries, notably in the Philippines and Malaysia. This increase is mainly due to
decreases in prices for these goods paid by private households as a result of
reduced producer prices following rice trade liberalization. Moreover, a decrease
in the rice price leads a fall in budget share of rice, thus allowing an increase in
consumption of other food products.
Complete rice trade liberalization also improves household food security in

Vietnam, but Vietnam differs from Malaysia and the Philippines in that private
households income increases while that in the latter two countries declines. The
increase in income can offset the substitution effect which was caused by
increased prices of agricultural goods, thus enabling Vietnams households to
increase consumption of several goods, such as wheat, meat products, other
food products, and all manufacturing goods. Even for rice consumption, despite
of increased price of rice following the tariff reform, the private households rice
116
consumption declines marginally due to the increased income offsetting the

increased price effect.
Table 6.13: Summary of changes in private household consumption of 30 goods

for ASEAN members (%) (Scenario 3 + 4)*.
Countries
Number of
goods
QUANTITIES
PRICES
Mean
Minimum
Maximum
Mean
Minimum
Maximum
Vietnam
30
0.17
-0.19
0.37
0.578
-0.5
3.152
Indonesia
30
0.01
0.12
-0.11
-0.88
Philippines
30
0.23
-0.07
2.00**
-1.65
-14.82**
0.06
Singapore
30
0.02
0.21
-0.33
0.42
Thailand
30
-0.01
-0.17
0.05
0.23
-0.14
1.34
Malaysia
30
0.22
3.93**
-1.48
-28**
0.02
Cambodia
30
-0.01
-0.03
0.03
-0.08
0.12
Lao
30
-0.01
-0.03
0.01
-0.04
0.13
*: Changes in private consumption in Scenarios 3 and 4 are added together with the aim of examining the
impacts of rice tariff removals on private household consumption.
**: Belongs to rice
6.3.4. Change in rice self sufficiency45

Table 6.14 shows that rice self-sufficiency decreases in the Philippines and
Malaysia in contrast to Vietnam and Thailands rice self-sufficiency. The
Philippiness rice self-sufficiency falls the most because the Philippines initial
tariff is the highest. Therefore, its rice tariff elimination leads to a plunge in
import and producer prices, thus causing the large fall in rice output. In Scenario
4, a larger decline in self-sufficiency for the Philippines is due to a larger
increase in imports of rice and a larger decrease in domestic production.
However, it is important to note that the magnitude of the decline in domestic
production and rice self-sufficiency are sensitive to private households
willingness to substitute between domestic rice and imported rice. GTAP has a
45
Self sufficiency equates to the total domestic production value of the good in interest divided by the
total domestic purchases of that good. Rice self-sufficiency is computed through domestic output divided
by grand total purchase by all agent in a region.
117
limitation in having one identical set of substitution elasticities between domestic

goods and imported goods for all regions.
Table 6.14: Rice self-sufficiency in ASEAN members following rice tariff

reduction
Goods
Processed
rice
Paddy
rice
Countries
Base data
Scenario 3
Scenario 4
Vietnam
1.45
1.47
1.56
Indonesia
0.94
0.94
0.94
Philippines
0.79
0.76
0.70
Singapore
0.5
0.49
0.49
Thailand
1.95
1.95
1.99
Malaysia
0.71
0.69
0.67
Cambodia
1.01
1.01
Lao
Vietnam
Indonesia
Philippines
Singapore
0.51
0.5
0.5
Thailand
1.02
1.02
1.02
Malaysia
0.99
0.98
0.98
1.01
Cambodia
Lao

Scenarios 3 and 4 aim to separately evaluate the contribution made by rice tariff
reduction/elimination to regional welfare changes. A similarity between the
outcomes of Scenarios 3 and 4 is that Vietnam and Thailand have the largest
gains in welfare from ASEAN rice liberalization, with TOT gains being the main
contributors (see Table 6.15). Further examination of TOT gains show that this
gain is largely derived from processed rice, followed by the textile, food
processing and other crop sectors. With regards to allocative efficiency gain,
there is little gain from resource re-allocation among Vietnams production
sectors, due to two reasons: Vietnam kept its rice tariffs unchanged till 2015, as
stated in the CEPT; and Vietnams rice tariffs are currently low (5%) compared
to 50% in the Philippines and 40% in Malaysia. While Vietnams welfare gain
mostly arises from improved terms of trade, Malaysias and the Philippiness
118
gains are mostly from allocative efficiency in Scenario 3. This gain dominates
the loss from deteriorated TOT in Scenario 3, thus leading to a gain in welfare.
Table 6.15: Welfare outcome of Scenarios 3 and 4 (US$ million)

WELFARE
Scenario 3
Allocative
efficiency
Scenario 4
TOT
Total
Allocative
efficiency
Scenario 3 + Scenario 4
TOT
Total
Allocative
efficiency
TOT
Total
Vietnam
0.65
29.26
32.73
2.29
119.75
133.04
2.94
149.01
165.77
Indonesia
-1.07
-2.83
-3.81
11.66
-32.49
-19.05
10.59
-35.32
-22.86
Philippines
49.92
-22.94
30.14
65.88
-92.44
-16.31
115.8
-115.38
13.83
Singapore
0.23
1.58
1.68
0.3
2.75
2.94
0.53
4.33
4.62
Thailand
0.42
16.33
16.08
1.1
57.9
56.84
1.52
74.23
72.92
Malaysia
20.56
-12.99
8.21
14.06
-18.42
-3.04
34.62
-31.41
5.17
Cambodia
0.01
-0.19
-0.17
-0.02
-1.04
-1.06
-0.01
-1.23
-1.23
-0.08
-0.07
-0.41
-0.42
-0.49
-0.49
ROW
-6.46
-8.16
-20.55
-33.15
-35.92
-91.13
-39.61
-44.08
-111.68
Total
64.26
-0.02
64.24
62.12
-0.32
61.81
126.38
-0.34
126.05
Lao
Table 6.16: Contribution to allocative efficiency in ASEAN members in

Scenario 3 + Scenario 4 (US$ million)
Goods
Vietnam
Indonesia
Philippines
Singapore
Thailand
Malaysia
Cambodia
Lao
Paddy rice
1.57
0.51
-0.02
0.01
22.38
Processed rice
0.74
10.95
113.37
0.01
14.96
0.07
Other goods
0.63
-0.87
2.45
0.53
1.5
-2.72
-0.08
Total
2.94
10.59
115.8
0.53
1.52
34.62
-0.01
The key difference between Scenario 3 and 4 is that deeper rice tariff cuts
(Scenario 4) reduce welfare in Indonesia, Malaysia and the Philippines,
Cambodia and Lao. Table 6.15 shows that these countries gain from allocative
efficiency, but this gain is diminished by deteriorated TOT despite of the gain in
119
allocative efficiency. Taking Malaysia as an example, examination into allocative

efficiency gains shows that processed rice is the main contributor (see Table
6.16). The gain in allocative efficiency in Malaysia, is because paddy production
is subsidized from the government. Following Malaysias rice tariff removal,
paddy rice output decreases while outputs of other sectors, such as vegetable oil
and other food products increase. This leads to a decrease in the governments
subsidy for the paddy rice sector and an increase in production tax collection
from other sectors. Regarding TOT, Malaysias TOT loss is derived from the fall
in TOT of vegetable oils and other food products because the export prices of
these goods fall (as discussed in section 6.3.2). Therefore, despite allocative
efficiency gains from better resource allocation, this gain is diminished by TOT
loss, thus resulting in welfare loss in Scenario 4 for Malaysia as well as the
Philippines and Indonesia. In brief, when the welfare of Scenario 3 and 4 are
added together, Vietnam, Thailand Singapore, Malaysia and the Philippines have
welfare gains from rice trade liberalization. However, the gain for Vietnam,
Thailand and Singapore is greater than for the Philippines and Malaysia. In
contrast, Indonesia, Cambodia and Lao suffer from welfare losses due to
deteriorated TOT.
6.4. Trade diversion and trade creation

AFTA leads to an increase in imports for all ASEAN members. Table 6.17 shows
total intra-ASEAN imports increase by US$17,659 million compared to the
baseline. Key contributors to this increase are tobacco and beverage imports
(US$8,947 million), petroleum and chemical products (US$ 6,099million), motor
and transportation (US$ 3,493 million), and equipment (US$2,201million).
Further examination shows that agricultural goods, except for beverage and
tobacco goods, account for a small share of an increase in intra-ASEANs
imports, which is driven by four key agricultural goods: processed rice, other
crops, vegetable oil, and other food products.
While the imports from ASEAN members increase, the imports from nonASEAN members decrease by US$6,909 million. Specifically, imports of most
120
manufacturing goods, notably petroleum and chemical goods from China, motor
and transportation goods from Japan and extraction goods from ROW fall.
Table 6.17: Changes in value of ASEANs imports from ASEAN and nonASEAN members by commodities (US$ million)
Commodity
Paddy Rice
Vegetable and Fruits
Oil seed
Other crops
Animal products
IntraSouth
china India
Japan AusNew USA
ASEAN
Korea
0
0
7
4
0
0
0
87
-16
-1
-4
EU
SSA
ROW
Total
11
-1
-2
62
37
-1
-1
-7
-19
571
-42
-74
-1
-2
-17
-59
-17
-144
-50
165
1
Other animinal products
15
-1
-1
-1
-2
-1
-1
Meat products
25
-2
-4
-1
19
233
-3
-46
-1
-12
-2
-92
76
Dairy products
47
-1
48
Processed rice
813
-1
-2
-14
795
Sugar
197
-2
-16
-5
-41
-7
-14
111
Other food products
509
-46
-5
-15
-18
-18
-34
-41
-2
-82
249
Vegetable oil
Beverage and tobacco

AGRICULTURE
8947
604
60
66
1583
14 -511
1451
58064
70285
11504
499
-86
-16
45
1512
-103 -577
1297
57796
71871
-8111
-594
-60
-5
-68
-1587
-14
513
-1445
-57410
-68781
750
-108
-4
-34
-25
-5
-11
-29
-1
-88
445
Paper
Petroleum and
chemical products
529
-44
-1
-11
-36
-18
-31
-51
-7
-56
276
6099
-864
-101
-432
-557
-38
-146 -323
-6
-987
2644
605
-23
-6
-13
-25
-27
-3
-9
-8
-38
453
-10
-38
-32
343
1710
Extraction
Metal
Metal products
Motor and
transportation
613
-65
-3
-18
-99
-4
3493
-177
-15
-95
-861
-13
-192 -360
-3
-67
Equipment
2201
-292
-24
-74
-340
-8
-113 -185
-1
-181
982
-24
32
23
17
51
30
192
808
-664 -1960
-1670
Services
MANUFACTURING
6155 -2136 -190
Total
17659
-1637
-277
-680
-1916
-158
122
357
-398 -126 -1464 -58667 -61121

-501 -704
-167
-871
Note. The value is a difference between value of updated value of imports at

world price (VIWS) in Scenario 4 compared to original baseline VIWS
As far as trade creation/diversion in agriculture is concerned, it is likely that trade
creation occurs in the processed rice sector for two reasons. Intra-ASEAN
imports of this good increase by $US 813 million following the complete rice
trade liberalization. This trade creation is affirmed by the fact that both Vietnam
and Thailand have a comparative advantage in producing and exporting
processed rice, as their revealed comparative advantages (RCA) are 36 and 32,
respectively (see Appendix 3 ). Likewise, trade creation occurs in vegetable oil
and other food crops for two reasons. Firstly, intra-ASEAN imports of vegetable
oil and other food crops increase following the tariff reforms (see Table 6.17).
121
10749
Secondly, all ASEAN members have a high RCA in those sectors. For example,
Indonesias RCA in vegetable oil is 13.92.
In regards to manufacturing trade, trade creation might occur in equipment,

petroleum and chemical products for two reasons. Firstly, intra-ASEAN
equipment imports increase by US$2,201 million. Secondly, several ASEAN
members have a comparative advantage in this sector, since the RCAs of the
Philippines, Singapore, Indonesia Malaysia and Cambodia are all above 1.
Likewise, the intra-ASEAN imports of petroleum and chemical products increase
by US$6,099 million, while the extra-ASEAN imports of the same goods decline
by US$3,455 million. Both Singapore and Thailand have a comparative
advantage in these goods. Meanwhile, trade diversion is likely to occur in the
motor and transport sector, because intra-ASEAN imports of motor and transport
increase by US$3,493million, while the imports from Japan and EU fall by
US$861 million and US$361 million, respectively. In regards to RCA, no
ASEAN members have a comparative advantage in the motor and transport
sector, while Japans and the EUs RCAs are 2.29 and 1.72, respectively.
The above evidence for trade creation and trade diversion is suggestive but
inconclusive. Therefore, to throw further light on this problem, the approach
suggested by Ginger (2011) was employed. This approach uses allocative
efficiency, a component of welfare decomposition, in order to examine trade
creation and diversion. Seven factors as associated with allocative efficiency46,
including tariff collection. This component of allocative efficiency is
decomposed into two parts: a contribution of tariff collection from ASEAN
members and the one from non -ASEAN members. An increase in the former
value, which is derived from an increase in intra-ASEAN imports, indicates trade
creation. A decrease of the latter value (which is derived from a decrease in
46
These factors include changes to tax collection levied on output; all endowment inputs; imported
intermediate inputs; domestic intermediate inputs; private household consumption; government
consumption; and exports and imports.
122
imports from non-ASEAN members) indicates trade diversion. These values are
sourced from GTAP outputs. The results show that the contribution of tariff
collection from intra- ASEAN trade to allocative efficiency increases while that
value from extra ASEAN trade falls (see Table 6.18). However, the increase is
greater than the loss, thereby enabling AFTA members, as a group, to have a net
increase of $US73.44 million. This net increase might suggest that trade creation
outweighs trade diversion. Further details are given in Table 6.18, which shows
that trade creation occurs in the processed rice and other crops sectors while
trade diversions occurs in most manufacturing sectors, notably motor and
transportation goods, equipment, petroleum, and chemical products. Hence, it is
likely that agricultural goods are key drivers of trade creation for AFTA.
Table 6.18: Contribution of import tax to allocative efficiency of ASEAN
members as a group, by commodities
Commodities
Paddy Rice
Vegetables and fruits
Oil seed
Other crops
Contribution of tariff collection to allocative efficiency

(US$ million)
Intra ASEAN
Extra ASEAN
TOTAL
1.05
0.62
1.67
11.71
-3.55
8.16
3.89
-5.53
-1.64
148.05
-91.31
56.74
-0.36
0.64
Fishing
0.39
-0.31
0.08
Vegetable oil
9.73
-7.77
1.96
Dairy products
2.92
-0.51
2.41
146.44
-7.79
138.65
28.98
-19.6
9.38
1.61
1.76
3.37
31.95
-43.53
-11.58
Processed rice
Sugar
Beverage and tobacco
Paper
11.73
-18.2
-6.47
Petroleum and chemical

products
Metal products
251.23
-300.66
-49.43
22.65
-31.49
-8.84
260.8
-307.83
-47.03
Equipment
37.15
-58.66
-21.51
1018.33
-944.89
73.44
Total
123
Chapter Seven SUMMARY AND

CONCLUSION
This section is designed to answer the research questions that were posed in
Chapter One. The results of Scenarios 1-3 are summed up to represent the full
impacts of AFTA by 2015 Scenario 4 results are displayed separately, which
represent the impacts of rice tariff reduction from the 2015 level to 0%. Finally,
the results of Scenarios 1-4 are aggregated, to represent the total impacts of
complete regional trade liberalisation.
This studys research questions were:
1. What will be the impacts of intra-ASEAN tariff reductions on the rice sectors
in Vietnam and ASEAN members, in terms of prices, exports and imports,
production, private household consumption and rice self-sufficiency?
2. Under CEPT commitments, the Philippines, Malaysia and Indonesia are to
reduce their rice tariffs to an agreed level by 2015, but they will not eliminate
their rice tariffs. To what extent will this rice tariff reduction increase Vietnams
rice production and rice exports? Would rice tariff elimination further enhance or
reduce each members welfare? What could be the hurdles against ASEAN
members further reducing their rice tariffs to 0%?
3. Is Vietnam likely to gain or lose as a result of AFTA? What will drive these
gains or losses?
4. Will AFTA result in trade creation and trade diversion when all members
complete their tariff reduction commitments, as stated in the CEPT schedule?
124
7.1. Rice prices

AFTA has only a minor effect on Vietnams rice export prices, as they increase
by only 1% (see Table 7.1). Agricultural and manufacturing tariff reforms
(Scenarios 1 and 2, respectively) have negligible impacts on rice prices and
therefore this increase is mainly derived from Scenario 3, when ASEAN
members decrease their rice tariffs to 2015 levels. However, if ASEAN member
countries reduce their rice tariffs from 2015 levels to 0%, the increase would be
greater at 2.53%. This situation is similar for paddy rice.
Table 7.1: Percentage changes in producers price and import and export prices
over four Scenarios
Goods
Processed
rice
Paddy
rice
Countries
SCE 1 + SCE 2 + SCE 3

Producer
price
Composite
export
price
Composite
import
price
Vietnam
1.10
1.10
1.00
Indonesia
0.33
0.33
Philippines
-0.57
Singapore
SCE 4
Producer
price
SCE 1 + SCE 2 + SCE 3 + SCE 4
Composite
export
price
Composite
import
price
2.53
2.53
-3.26
0.87
-0.50
-0.50
-0.57
-9.10
-5.41
0.51
0.51
0.54
Thailand
0.75
0.75
Malaysia
-2.89
Cambodia
Producer
price
Composite
export
price
Composite
import
price
3.63
3.63
-2.26
-6.23
-0.17
-0.17
-5.36
-5.41
-24.50
-5.99
-5.99
-33.60
0.31
0.31
0.72
0.83
0.83
1.26
-1.22
0.81
0.81
-0.14
1.56
1.56
-1.37
-2.89
-12.79
-3.16
-3.16
-15.19
-6.04
-6.04
-27.98
1.87
1.87
-0.99
0.01
0.01
-3.82
1.88
1.88
-4.81
Lao
3.26
3.26
0.38
-0.01
-0.01
-2.43
3.25
3.25
-2.04
Vietnam
1.18
1.18
-0.02
3.26
3.26
0.01
4.44
4.44
-0.01
Indonesia
0.29
0.29
0.00
-0.61
-0.61
-0.18
-0.31
-0.31
-0.17
Philippines
-0.66
-0.66
0.04
-5.94
-5.94
-3.17
-6.60
-6.60
-3.13
Singapore
3.95
3.95
0.48
0.11
0.11
0.53
4.06
4.06
1.01
Thailand
0.75
0.75
-1.85
1.06
1.06
0.00
1.81
1.81
-1.86
Malaysia
-1.93
-1.93
-12.66
-3.40
-3.40
-15.96
-5.32
-5.32
-28.62
Cambodia
1.90
1.90
0.81
0.01
0.01
-1.43
1.90
1.90
-0.62
Lao
3.93
3.93
0.62
-0.01
-0.01
-3.07
3.92
3.92
-2.45
In contrast to Vietnam, the Philippines and Malaysias producer and export

prices of paddy and processed rice fall slightly following AFTA, but the fall
becomes greater under Scenario 4. Indonesia differs from the Philippines and
125
Malaysia in that its prices only fall slightly in Scenario 4- complete rice
liberalisation. This difference occurs because Indonesias initial rice tariffs are
lower than the other two countries, and because Indonesias has less reliance on
rice imports, given its self-sufficiency being 99% in 2007, in comparison with
approximately 70% in the Philippines and Malaysia (GTAP Data Base, Version
8).
7.2. Rice imports, exports and production

Table 7.1 shows that AFTA leads to an increase in imports of rice for several
ASEAN members. However, the Philippines and Malaysia register the largest
increases, by more than 16%. This increase is greater in the Philippines and
Malaysia in Scenario 4 (52% and 19% respectively), which is partially due to a
greater fall in the import price. The lower import price encourages agents in these
countries to substitute away from domestically produced rice in favour of
imported rice. A deeper tariff cut leads to greater imports and a larger fall in
production. As shown in Table 7.1 and Table 7.2 , in the Philippines, for example,
the import price of processed rice falls by 24% and imports increase by 52%, and
production declines by 13% in the event of complete rice liberalization (Scenario
4).
126
Table 7.2: Percentage changes in production, aggregate exports and aggregate

imports of processed rice and paddy rice in four scenarios
Goods
Countries
Vietnam
Indonesia
Philippines
Processed Singapore
rice Thailand
Malaysia
Cambodia
Lao
Vietnam
Indonesia
Philippines
Singapore
Paddy rice
Thailand
Malaysia
Cambodia
Lao
SCE 1 + SCE 2 + SCE 3

Aggregate Aggregate
Production
exports
imports
Production
SCE 4
Aggregate
exports
Aggregate
imports
SCE 1 + SCE 2 + SCE 3 + SCE 4

Aggregate Aggregate
Production
exports
imports
1.47
4.87
0.27
5.77
17.94
16.46
7.25
22.81
16.73
0.10
-1.12
-1.31
-0.88
3.23
15.46
-0.78
2.11
14.15
-4.63
4.14
18.98
-12.90
34.10
52.48
-17.53
38.24
71.45
0.03
-2.03
1.46
0.10
1.15
-0.08
0.12
-0.88
1.38
-0.15
-0.15
5.16
1.85
3.91
2.43
1.70
3.76
7.59
-5.16
18.13
16.35
-7.73
23.88
19.01
-12.89
42.01
35.35
-0.65
-7.15
7.12
-0.21
0.92
10.41
-0.86
-6.23
17.53
0.06
-14.06
7.94
-0.05
3.07
6.47
0.01
-10.99
14.41
1.24
-9.59
7.45
5.03
-23.77
23.44
6.27
-33.36
30.88
0.09
13.00
1.54
-0.81
31.82
-2.96
-0.72
44.82
-1.42
-4.44
9.13
-3.45
-12.34
73.39
-14.43
-16.77
82.51
-17.88
-2.40
-32.55
5.22
0.36
-0.72
-0.36
-2.04
-33.27
4.85
-0.21
-4.24
13.26
1.64
-5.31
5.95
1.43
-9.55
19.21
-5.37
20.00
63.74
-8.25
32.05
73.44
-13.62
52.05
137.18
-0.71
24.11
4.87
-0.01
53.72
7.41
-0.72
77.83
12.28
0.26
-28.99
17.31
-0.02
0.88
16.80
0.24
-28.11
34.11
In response to ASEAN partners increased import demand for processed rice,

Vietnams exports of processed rice increase by almost 23% in total. This
increase is primarily derived from Scenarios 3 and 4. Moreover, the larger
increase in Scenario 4 than in Scenario 3 is due to a substantial increase in
Vietnams exports to the Philippines, Indonesia and Malaysia, in response to a
larger increase in import demand for rice from these countries.
In response to the increased export demand, domestic production of processed

rice and paddy rice in Vietnam increases slightly (approximately 2% and 5%),
following partial and complete rice liberalisation (Scenarios 3 and 4,
respectively). A larger increase in production in the latter scenario is due to a
larger increase in export demand. The percentage increase in production is
smaller than that in exports, due to a fall in the domestic demand for local rice,
127
which is a result of a fall in the relative price of imported rice, following

Vietnams rice tariff elimination. It is helpful to note that Vietnams output and
farm gate price of paddy rice are driven solely by an increase in the domestic
production of processed rice. More specifically, exports and imports of paddy
rice between Vietnam and ASEAN members remains unchanged, following
ASEANs complete rice liberalisation since there is no trade in paddy rice
between Vietnam and its ASEAN partners in the GTAP baseline database 47.
In summary, the impacts of AFTA on Vietnams rice sector are similar to those
observed in the studies of global rice trade liberalisation. A recent study by
Wailes and Morat (2011) predicted that, if all countries eliminated rice tariffs,
the Vietnamese producer price is predicted to increase by approximately 14%;
the consumers price increases by approximately 11%; and the export price
increases by 11%. Vietnams rice export quantity increases by approximately
25%. The differences in percentage between this study and previous studies are
due to differences in model assumptions, the database and baseline and the
scenario design. The findings of this study are also consistent with a study by
Heo and Doanh (2009), which found that trade liberalisation leads to a decrease
in the price of importable goods and an increase in the price of exportable goods
in Vietnam, thus contributing to a reduction in the level of poverty. Consistently,
Strutt et al. (2010) show that intra-ASEAN tariffs removal bring about economic
welfare gains, and reduce poverty reduction in Vietnam.
7.1. Rice self-sufficiency and rice trade balance

This research provides, for the first time, quantitative evaluation into the impacts
of complete regional rice trade liberalization on AFTA members rice trade
balance and rice self-sufficiency. The Philippines and Malaysia show the largest
fall in both rice trade balance and self-sufficiency. It is important to note that
these falls in self-sufficiency, as a consequence of rice trade liberalisation, do not
imply decreased food security. Dawe, Moya, & Casiwan (2006) and Dawe (2013)
47
If a commodity has zero trade in the database, it will remain zero in the simulations.
128
point out that rice trade policy in the Philippines and Malaysia, in pursuit of rice
self-sufficiency, increases domestic prices, which is likely to reduce the food
security of poor households. Moreover, a restriction on rice imports reduces
diversification in agricultural production. On the contrary, rice trade
liberalisation leads to an improvement in household food security, but it reduces
self-sufficiency. In regards to the matter of food security, Kajisa and Akiyama
(2005) also suggest that the Philippines would be likely to achieve food security
for poor households, in the event of rice trade liberalisation. This study makes a
further contribution to existing literature reviews regarding a trade-off between a
households food security and rice self-sufficiency.
7.2. Impacts of AFTA trade liberalisation on

remaining sectors
The findings of this study contribute additional evidence that suggests ASEAN
rice liberalisation increases crop diversification in the Philippines and Malaysia.
In the Philippines, the production of other crops, wheat, vegetables and fruit
are projected to expand around 1.5 % in Scenario 3: and further increase by about
3% in Scenario 4. Moreover, exports of vegetable oil and vegetables and fruit, in
which the Philippines have a comparative advantage, increase by 5.5% and 8.5%,
respectively, following the tariff reforms. A similar situation exists for exports of
other crops, meat products, cattle and animal products and sugar cane/beet in
the Philippines. Likewise, Malaysia achieves resource allocation, due to an
increase in their production and export of agricultural goods with a comparative
advantage following its rice trade liberalisation (Scenarios 3 and 4). The outputs
of downstream sectors, such as processed food, which is included in the other
food products sector, also increase slightly. This finding further supports the
idea of Athukorala and Lok (2009) that rice trade liberalisation better reallocates
resources into efficient and fast growing sectors, such as processed food in
Malaysia.
129
However, a finding of this study suggests that ASEAN rice trade liberalisation
has only a minor impact on Indonesias diversification of agricultural production.
This result differs from Sayaka et als results (2007) which show that Indonesias
rice tariff elimination increases the diversification of Indonesias agricultural
production. This difference is partially due to two reasons, Firstly, Sayaka et al
employed a multi-market model approach while this study employed CGE-model.
The latter incorporates 30 aggregated commodities while the former does only 4
commodities. Secondly, there is a difference in rice tariffs used in the two studies.
In reality, Indonesia employs a specific tariff, which is 430-450Rp/kg. In Sayaka
et als study, this tariff is equivalent to 30% although their methodology was not
explained. In this study, Indonesias ad-valorem equivalent tariffs on rice
imported from ASEAN partners, range from 8.04 to 9.91%. When reduced to 0,
the lower tariffs cause lower falls in the import price and imports of rice, thus
leading to lower impacts on other sectors in Indonesia.
7.3. Changes in private households

consumption
The Philippines and Malaysia register the largest increases in rice consumption
following their rice tariff reductions (Scenarios 3 and 4), due to their largest fall
in the price of rice paid by private households. These findings are consistent with
studies by David et al. (2009) who found that rice trade liberalisation resulted in
lower rice prices for consumers, thus increasing rice consumption in the
Philippines. Rice trade liberalisation also improves household food security48,
due to an increasing supply of rice at lower prices for poor consumers in the
Philippines and Malaysia (Wailes & Morat, 2011). In accordance with their
results, this study finds that the private household consumption of most
agricultural goods and food products in the Philippines and Malaysia increase
marginally in Scenarios 2, 3 and 4. This finding is similar to those observed in
48
This food security improvement is based on the following definition of food security: when all people
at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life (World
Health Organization, 1996)
130
the previous studies that rice trade liberalisation improves households

consumption of foods and agricultural products in the liberalizing countries.
Complete rice trade liberalization also contributes to the increase in private

households consumption of most goods in Vietnam. However, Vietnams
situation differs from the Philippines or Malaysias situations in that the ASEAN
rice trade liberalisation leads to an increase in private households income in
Vietnam. This effect can offset the substitution effect which is caused by
increases in the prices of agricultural goods, thus enabling Vietnams households
to increase consumption of several goods, such as wheat, meat products, other
food products, and all manufacturing goods. As far as private households rice
consumption is concerned, it falls marginally due to the increased price effect
offsetting the increased income. Overall, when the four scenarios are aggregated,
Vietnamese households consumption of all goods increases slightly, except for a
marginal decline in rice consumption. Similarly, Nguyen and Ezaki (2005)
found that regional economic integration leads to an increase in household
income and consumption in Vietnam, and thus this situation is likely to benefit
poor and rural households in Vietnam.
7.4. Welfare outcomes

The results of this study support previous findings that all AFTA members
benefit from a gain in welfare following the tariff reforms, but the original
members gains far exceeds the new members gains. Singapore benefits the
most, followed by Malaysia, Thailand, Indonesia and the Philippines. It is worthy
to note that because most of Singapores tariffs are zero, its welfare gain is
primarily derived from TOT gain. The discrepancy between original and new
members is more obvious when welfare per capita is considered. Table 7.3 shows
that, when the welfare gains of all four scenarios are added together, welfare gain
per capita in Vietnam is just 1.6% and 15% of that of Singapore and Malaysia,
respectively. This finding supports the idea that AFTA brought about minor
welfare gains for Vietnam, because Vietnam, Thailand, the Philippines and
131
Indonesia share similarities in comparative advantage, especially in agricultural

goods (Le, 2003). Trade in agricultural goods among ASEAN partners is more
competitive, rather than complementary (Daquila, 2004). Bui (2008) reports that
trade among original ASEAN members was characterised by intra-industry trade,
while trade between original and new ASEAN members is inter-industry trade.
Tongzon and Khan (2005) also find that new ASEAN members face substantial
tariff revenue loss in the short term as a result of the CEPT scheme.
Table 7.3: Summary of welfare outcomes (US$ million)
WELFARE
GAIN
SCE 1 + SCE 2
+ SCE 3
Total
Per
capita
SCE 4
Total
SCE 1 + SCE 2
+ SCE 3 + SCE 4
Per
capita
Total
Per
capita
Vietnam
28
0.33
133
1.57
161
1.90
Indonesia
231
0.99
-19
-0.08
212
0.91
Philippines
231
2.61
-16
-0.18
215
2.42
Singapore
710
150.01
0.62
713
150.63
Thailand
290
4.28
57
0.84
347
5.11
Malaysia
379
14.01
-3
-0.11
376
13.90
Cambodia
10
0.75
-1
-0.08
0.67
Lao
14
2.36
-0.07
14
2.29
Note. Population data in 2007 is sourced from FAOSTAT (2007)
Examination of Vietnams welfare gains shows two key findings. Firstly,

agricultural tariff reforms primarily contribute to welfare gains for Vietnam, with
improved TOT being the main driver of these gains. Processed rice, processed
food included in other food products, other crops, including coffee and
pepper, and crude oil are the key contributors of TOT gains. Secondly, Vietnam
experiences an allocative efficiency loss from its manufacturing tariff reduction
because Vietnam has a lower share of intra-ASEAN trade and a higher share of
agricultural exports in comparison with older ASEAN members. Vietnam has the
lowest level of intra-trade with ASEAN partners, namely 17.2%, as opposed to
64% (Lao PDR) and 23% (Cambodia) in 2011 (Chia, 2013) and this share for
132
Vietnam has not changed from 1990 to 2011 49. Because Vietnam has little
manufacturing trade with ASEAN, so it has little opportunity to achieve
allocative efficiency. The rationale seems consistent with the study by Bui (2008)
that Vietnams low trade flows with ASEAN partners was an underlying factor
for the deterioration in its national welfare, following its regional tariff reforms.
The result of this study is also consistent with the findings of previous studies
Fukase & Martin (2001); Strutt et al. (2010); and Toh Mun and Gayathri (2004)
that Vietnams gains from AFTA arise from TOT improvement; and that
processed foods, including processed rice, are Vietnams core competence.
One key purpose of this study is to examine the contribution of complete rice
trade liberalization to each ASEAN members welfare change. The results
suggest that complete rice trade liberalisation increases welfare for Vietnam,
while it decreases welfare in Indonesia, the Philippines and Malaysia. Table 7.3
shows that the majority of Vietnams welfare gains arise from Scenario 4
(ASEAN rice trade liberalisation), whereas, Indonesia, the Philippines and
Malaysia suffer welfare losses in this Scenario. Further examination shows that
gains from better resource allocation are diminished by a deteriorated TOT in
these three countries. In the Philippines, for example, processed rice and
equipment register the largest fall in TOT, due to decreased export prices. This
finding could further explain these countries exempting rice from complete
regional trade liberalisation, in addition to the rationales discussed in the
literature review section.
7.5. Trade creation and trade diversion

The findings of this study support the trade creation effects of AFTA. AFTA has
contributed to an increase in agricultural trade among members, especially in the
rice sectors. This trade creation outweighs trade diversion in some manufacturing
sectors. This trade creation is aligned with the finding of Korinek and Melatos
(2009) that complete implementation of AFTA has significant impacts on
creating trade in food and agricultural goods. However, the finding of this study
133
contrasts with the finding of Toh Mun and Gayathri (2004) and Fukase and
Martin (2001) who used an earlier GTAP database. This difference is probably
due to the evolution of intra-trade among ASEAN members. In this regards, Chia
(2013) points out that intra-ASEAN trades share out of total exports of
ASEAN10 increased from 17% to 25%, between 1990 and 2011. This increase
can be attributed to improvements in customs and trade logistics following
AFTA. Abbott et al (2009) also showed that trade flows among ASEAN
members have increased significantly between 1986 and 2004.
7.6. Conclusion, research limitations and ideas

for future research
Using the GTAP V8 database, this study evaluated the impacts of AFTA on
ASEAN members from different perspectives: agricultural production,
consumption, trade, and prices for agricultural and processed food. An emphasis
was placed on rice production and trade for ASEAN members. This study differs
from previous studies in two ways. Firstly, it examined the contribution of
regional rice trade liberalisation to regional welfare gain. Secondly, agricultural
and food processing commodities of GTAP database in this study were not
aggregated, whereas previous researchers aggregated agricultural goods in GTAP
database into fewer goods.
The major findings of this study support trade creation of AFTA, and that AFTA
has significant impacts on creating trade in food and agricultural goods. The
findings of this study also advocate for intra-ASEAN rice trade liberalization
from economic perspectives for two reasons. Firstly, it enhances economic
welfare gains for new ASEAN members, especially Vietnam. Secondly, it brings
about two important benefits for the other ASEAN members, especially the
Philippines and Malaysia. These benefits include an increase in rice consumption
for private households, thus contributing to increased household food security.
Another benefit is a better resource allocation and an increase in production of
goods with a comparative advantage. The research also pinpoints that rice
134
production has been distorted by rice trade protection in the Philippines and
Malaysia. In the event of complete rice trade liberalization, domestic rice prices
and production in these countries fall substantially.
The findings of this study also suggests that complete rice trade liberalization
increases welfare for Vietnam, and supports previous studies that show rice trade
liberalization contributes to improve rice farmers incomes, and thus to reduce
poverty in Vietnam. However, as highlighted in literature reviews, regional rice
trade may not occur in the future as long as some issues remain unresolved.
These issues include ASEAN members persistent pursuit of rice-self-sufficiency
and their lack of trust in the world rice market. To overcome these problems,
Vietnam should undertake a consistent and reliable rice export policy. There is a
need for an improvement in market analysis and forecasts to better cope with
price volatility in the world market. Then measures to enhance Vietnams rice
export competitiveness, for example improving quality should be taken in the
long term. Extreme resorts to cope with price volatility in the world market, such
as the export ban in 2007/2008, should be avoided.
This research inevitably involves some limitations. Noting five of these

limitations might be helpful for future researchers. Firstly, under a limited
GEMPACK licence, this research was unable to study beyond 30 aggregated
commodities, although the GTAP database provides data for 50 commodities.
Therefore, commodities had to be aggregated. However, the outcome of tariff
reforms can vary with different aggregation approaches. Future researchers
should extend disaggregation beyond 30 aggregated commodities in order to
evaluate the impacts of tariff reforms in more detail. Secondly, due to the nil
trade flow of paddy rice between Vietnam and its ASEAN partners in the
baseline database, the GTAP model is limited by not being able to produce new
valid trade flows for such goods, in response to tariff reforms. This situation also
occurs for wheat, wool and raw milk goods for some ASEAN members. It is
135
probable that the gain from agricultural trade liberalisation for ASEAN members
would be greater without this limitation. Thirdly, the results of this research
present changes in variables such as trade, production and consumption, in
comparison with the baseline data for 2007, following the tariff reforms. The lag
in data used in this research undermines the predicted outcomes of future tariff
reforms. Future researchers in a similar area should, therefore, update the model
to 2015, in order to better evaluate future tariff reforms. Fourthly, in this study,
for simplicity, most ASEAN members GTAP tariffs are reduced to 0%. Some
new ASEAN members tariffs are reduced to 5%. Tariffs on goods in exclusion
lists are not changed. Future research in the similar area could better estimate the
impact of preferential tariff reduction. For example, at the HS 6 level, all tariff
lines that have been aggregated into a single GTAP commodity can be listed
along with base period trade values, base tariffs, and the new liberalized tariffs.
Then the trade weighted liberalized tariff of the GTAP commodity can be
computed.
Finally, the findings of this research are limited to the static impacts of a regional
free trade agreement on economic welfare. It has been widely recognised that the
economic impacts of RTAs may be larger if the dynamic impacts are taken into
account (Burfisher, Robinson, & Thierfelder, 2004; Robinson & Thierfelder,
2002). Such dynamic impacts include capital stock accumulation and the link
between trade and productivity. In regard to the impacts of AFTA on Vietnams
trade growth, Abbott et al. (2009, p. 309) pointed out that the growth of
Vietnams trade with ASEAN members far exceeded any model- based
predictions, and that bilateral trade agreements in the past have generated new
and more diversified trade flows well beyond the levels that are likely to follow
from modest tariff reductions. Institutional reforms are one of the key factors
explaining for the robust growth of Vietnams trade with ASEAN countries.
Future research on impacts AFTA on Vietnam could extend to the dynamic
impacts of AFTA and examine the impacts of RTAs between ASEAN and nonASEAN members.
136
Despite the limitations mentioned above, the results of this study could assist
policy makers in ASEAN partners to better evaluate the pros and cons of further
opening their rice markets in the future.
137
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APPENDIX
Appendix 1: Comparison of types of rice
exports among three key rice exporters
Overview on rice types
Japonica and India rice
+ Japonica is produced mainly in temperate and tropical upland climatic
zones, mainly in Japan, South Korea, Australia, and some areas in China,
Thailand and the US. Japonica rice accounted for only about 13% of the world
rice production in 2000-2005. Short grain rice belongs to the Japonica type.
+ Indica rice is grown in the tropics. The grain length can be short, medium
or long. Indica rice (long grain) is mainly grown in Vietnam and Thailand.
+ Fragrant rice (usually long grain rice) is distinctive by its aroma. One
example of fragrant rice is Thai jasmine rice, registered as Hom Mali. Another
example is Basmati rice which originated from India and is mainly produced in
India and Pakistan.
+ Glutinous rice (or sticky rice) consists of amylose and amylopectin starch
with chalky white texture. It accounts for a small share of Thailands and
Vietnams exports.
Rice types by degree of processing

+ Rough rice (Paddy rice): rice is harvested from the field with husk and
bran layer attached
+ Brown rice: husk is removed, but bran layer is still attached.
+ Milled white rice: rice whose husk and bran layers are all removed
through the milling process.
+ Head rice (or broken rice 100%): Fully milled rice grains that remain
intact
+ Broken rice: is also known as damaged white rice during milling process.
The higher number of broken grains each quantity unit of rice has, the lower the
quality. Milled rice with higher percentage of broken grains is sold at lower price.
144
For example, Vietnams milled rice with 25% and 5% broken rice were
US$398/ton and US$424/ton, respectively at December 2013 (FAOSTAT, 2013).
+ Parboiled rice: rice that has passed through parboiling process under
intense pressure before its bran is removed. During this process, a part of
nutrients from the bran is pushed into the kernel before the bran is removed, thus
some nutrients are kept in the starchy centre of rice.
Type of rice exports by country

Almost 90% of Vietnams rice exports are white rice with broken grains (Indica
rice). The share of Vietnams rice 5% broken, Vietnams highest quality rice,
increased from 17% in 1999 to 27% in 2010. The share of lowest quality rice
(rice 25% broken and rice 100% broken) declined from 38% to 31% while the
share of rice 15% broken increased double in the same period (see Figure A.1).
Overall, despite the increase in proportion of higher quality rice types, a majority
of Vietnams rice exports were still white rice with broken grains. In comparison
to Thailand, such low quality rice accounted for only 26% of Thai rice exports in
2010. The remainder of Thai rice exports are parboiled rice, fragrant rice and
white rice 100% which Vietnam is not able to produce. The proportion of the
high quality rice tends to increase (as shown in Figure A.2), thus continuing to
enable Thailand to increase its global competitiveness. Due to the ability to
produce high quality rice, Thailand can occupy a large market share in the US,
EU, Japan and Middle East.
Indian rice exports differ from those of Thailand and Vietnam in terms of rice
type. A large proportion of Indias rice exports are Basmati rice. The share of
Basmati rice to total rice exports increased substantially from 55% in 2000 to 96%
in 2010 due to the Indian Governments restriction of exportation of nonbasmati rice. Indias main export markets are the EU and Middle East regions.
145
Figure A.1: Vietnam rice exports by types. Sources: (Kreamer, 2000; Quan &
Taylor, 2010)
Notes: Other rice includes glutinous, jasmine rice
Figure A.2 Thai rice exports by types. Sources: (Prasertsri & McSherry, 2004;
Prasertsri & Vasquez, 2011)
146
Appendix 2: Aggregation of region and goods

Table A.1: Regional Aggregation
No.
Code
Comprising regions
Vietnam
Viet Nam.
Indonesia
Indonesia.
Philippines
Philippines.
Singapore
Singapore.
Thailand
Thailand.
Malaysia
Malaysia.
Cambodia
Cambodia.
Lao
Lao People's Democratic Republ.
OtherSEA
Rest of Southeast Asia.
10
China
China.
11
India
India.
12
SouthKorea
Korea.
13
Japan
Japan.
14
AusNew
Australia; New Zealand.
15
USA
United States of America.
EU
Austria; Belgium; Cyprus; Czech Republic; Denmark; Estonia; Finland; France;

Germany; Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta;
Netherlands; Poland; Portugal; Slovakia; Slovenia; Spain; Sweden; United
Kingdom; Bulgaria; Croatia; Romania.
16
17
SSA
18
ROW
Benin; Burkina Faso; Cameroon; Cote d'Ivoire; Ghana; Guinea; Nigeria; Senegal;
Togo; Rest of Western Africa; Central Africa; South Central Africa; Ethiopia;
Kenya; Madagascar; Malawi; Mauritius; Mozambique; Rwanda; Tanzania;
Uganda; Zambia; Zimbabwe; Botswana; Namibia; South Africa.
Rest of Oceania; Hong Kong; Mongolia; Taiwan; Rest of East Asia; Bangladesh;
Nepal; Pakistan; Sri Lanka; Rest of South Asia; Canada; Mexico; Rest of North
America; Argentina; Bolivia; Brazil; Chile; Colombia; Ecuador; Paraguay; Peru;
Uruguay; Venezuela; Rest of South America; Costa Rica; Guatemala; Honduras;
Nicaragua; Panama; El Salvador; Rest of Central America; Caribbean; Switzerland;
Norway; Rest of EFTA; Albania; Belarus; Russian Federation; Ukraine; Rest of
Eastern Europe; Rest of Europe; Kazakhstan; Kyrgyztan; Rest of Former Soviet
Union; Armenia; Azerbaijan; Georgia; Bahrain; Iran Islamic Republic of; Israel;
Kuwait; Oman; Qatar; Saudi Arabia; Turkey; United Arab Emirates; Rest of
Western Asia; Egypt; Morocco; Tunisia; Rest of North Africa; Rest of Eastern
Africa; Rest of South African Customs ; Rest of the World.
147
Table A.2: Commodity Aggregation

No.
Code
Comprising sectors
PaddyRice
Paddy rice.
Wheat
Wheat.
Grains
Cereal grains nec.
VegFruits
Vegetables, fruit, nuts.
Oilseeds
Oil seeds.
Sugarcb
Sugar cane, sugar beet.
Othercrops
Plant-based fibers; Crops nec.
CattnAniprod
Cattle,sheep,goats,horses.
Oap
Animal products nec.
10
Rawmilk
Raw milk.
11
Wol
Wool, silk-worm cocoons.
12
Forestry
Forestry.
13
Fishing
Fishing.
14
Extraction
Coal; Oil; Gas; Minerals nec.
15
Meat
Meat: cattle,sheep,goats,horse.
16
Meatproducts
Meat products nec.
17
Voil
Vegetable oils and fats.
18
Dairyproduct
Dairy products.
19
ProRice
Processed rice.
20
Sugar
Sugar.
21
Otherfoodpro
Food products nec.
22
Berntob
Beverages and tobacco products.
23
TexNclothing
Textiles; Wearing apparel; Leather products.
24
Paper
Wood products; Paper products, publishing.
25
PetroNChemi
Petroleum, coal products; Chemical,rubber,plastic

prods; Mineral products nec.
26
Metal
Ferrous metals; Metals nec.
27
Metalpro
Metal products.
28
MotorNtransp
Motor vehicles and parts; Transport equipment nec.
29
Equipment
Electronic equipment; Machinery and equipment

nec; Manufactures nec.
Services
Electricity; Gas manufacture, distribution; Water;

Construction; Trade; Transport nec; Sea transport;
Air transport; Communication; Financial services
nec; Insurance; Business services nec; Recreation
and other services;
PubAdmin/Defence/Health/Educat; Dwellings.
30
148
Appendix 3: Revealed Comparative advantage

This research employs method in computing revealed comparative advantage
(RCA) introduced by Yeats (Yeats, 1998). RCA is computed as follows:
Whereas:
: Exports of product j of region r
: Total exports of region r
: Worlds exports of product j excluding the value of exports of product j
from region r
: Total world exports excluding the total value of region rs exports
RCA > 1 indicates country r has a comparative advantage in good j: the reverse
indicates that country r has a comparative disadvantage in good j.
Table A.3 shows that Vietnam, Thailand and Indonesia have relatively similar
patterns of comparative advantage. Both Vietnam and Indonesia have a
comparative advantage in crude oil (included in extraction), textile and clothing,
paper production, processed foods (included in other food products), animal
products and coffee (included in other crops). Similarly, Vietnam and Thailand
have a comparative advantage in vegetables and fruits and processed rice. Given
that some ASEAN members have been the worlds largest exporters of vegetable
oil and fish, Table A.1 shows Vietnam, the Philippines and Thailand have
comparative advantages in these goods. All original ASEAN members have
comparative advantage in their export of equipment, which accounted for the
largest share of each members total exports in 2007. Whereas, none of these
members have comparative advantage in motor and transportation goods.
149
Table A.3: Relative comparative advantage

Commodity
Vietnam
Indonesia
Philippines
Singapore
Thailand
Malaysia
Cambodia
Lao
OtherSEA
China
India
Paddy Rice
0.2
0.1
0.0
0.0
5.3
0.0
1.9
8.0
0.0
0.7
14.8
Wheat
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.0
Grains
0.0
0.1
0.0
0.0
0.4
0.0
0.8
4.9
1.0
0.4
0.5
Vegetable and Fruits
2.3
0.4
1.7
0.0
1.2
0.1
0.9
0.7
6.6
0.5
1.2
Oil seed
0.5
0.2
0.0
0.0
0.0
0.0
0.6
0.7
1.4
0.2
1.3
Sugar cane and beets
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Other crops
9.3
2.9
0.2
0.1
0.5
0.2
0.2
5.7
0.1
0.3
4.3
Animal products
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.0
0.1
Other animinal
products
1.3
1.2
0.0
0.2
0.2
0.8
0.3
2.8
0.1
0.8
0.5
Wool
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.1
0.0
Forestry
1.9
0.5
0.0
0.1
0.2
3.8
3.2
41.9
35.9
0.1
0.5
Fishing
0.8
2.4
1.1
0.2
1.4
0.5
0.5
0.0
3.7
0.5
0.4
Extraction
1.7
2.3
0.2
0.0
0.1
0.9
0.0
0.2
6.8
0.1
0.6
Meat
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.2
Meat products
0.3
0.1
0.1
0.0
1.7
0.0
0.0
0.0
0.0
0.3
0.0
Vegetable oil
0.1
13.9
2.2
0.2
0.4
11.1
0.1
0.0
0.0
0.1
2.3
Dairy products
0.1
0.1
0.4
0.3
0.2
0.2
0.0
0.0
0.0
0.0
0.4
36.4
0.0
0.0
0.0
32.3
0.0
0.3
1.1
0.3
0.3
18.9
Sugar
0.2
0.2
0.9
0.2
6.1
0.5
0.0
0.0
0.0
0.0
4.6
Other food products
4.0
1.2
0.7
0.4
3.0
0.6
0.1
0.0
0.7
0.8
0.9
Beverage
and tobacco
0.2
0.2
0.3
0.2
0.3
0.3
0.2
0.2
0.0
0.1
0.2
Textile
and clothing
5.4
2.0
0.8
0.1
1.1
0.3
16.3
3.3
0.8
4.4
3.1
Paper
1.8
2.3
0.5
0.3
0.7
1.2
0.5
3.3
0.4
1.2
0.2
Petroleum
and chemical products
0.4
0.9
0.2
2.0
1.0
0.8
0.1
0.1
0.0
0.5
1.4
Metal
0.2
0.9
0.6
0.3
0.5
0.4
0.1
6.7
0.1
0.6
1.5
Processed rice
150
Metal products
0.7
0.4
0.2
0.3
0.8
0.4
0.1
0.0
0.0
1.7
1.1
0.1
0.2
0.3
0.2
0.8
0.1
0.1
0.0
0.0
0.3
0.3
Equipment
0.4
0.5
2.5
1.8
1.5
1.9
0.0
0.1
0.0
1.8
0.7
Source: data is sourced from GTAP Database Version 8
151
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THE IMPACTS OF ASEAN FREE TRADE

A thesis presented in partial fulfilment of the

At Massey University, Palmerston North

Thi Lan Anh Nguyen

Firstly, AFTA leads to a small increase in Vietnams rice production and

Secondly, the results of this research support complete trade liberalization

from an economic perspective because it enhances economic welfare gains for

Thirdly, this study draws further attention to a trade-off between food

security in rice and rice self-sufficiency. Complete trade liberalisation leads to

2.5.2. Trade policy .........................................................................................27

5.2.1. Data aggregation ..................................................................................73

Chapter One INTRODUCTION

Furthermore, in most of the studies on the impacts of AFTA on Vietnams

1.2. Structure of the thesis

1.3. An overviews on the worlds rice

Although rice is differentiated by types, level of processing, level of quality and

1.3.1. World rice production

Among Asian countries, China, India, Indonesia, Bangladesh and Vietnam

Table 1.1 Proportion of rice production to grain production* in selected Asian

1.3.2. Rice consumption in selected Asian

Source: (FAOSTAT, 2013)

1.3.3. Major rice exporters

Table 1.3 Major milled rice exporters from 1991 to 2010

Rest of the world

Rest of the world

Source: (USDA, 2013)

1.3.4. Major rice importers

Rest of the world

Rest of the world

Source: (USDA, 2013)

Examination of rice consumption trends in selected Southeast Asian countries

Chapter Two OVERVIEW OF PRODUCTION

5% annual growth rate

State-trading enterprises also played a key role in assisting the government to

2.1.2. Trade policy

Lifted export ban

Source: (Clarete, 2012; USDA, 2013)

(MEP: minimum export price)

Source: Wade & Prasertsri (2012, p. 11)

2.2.2. Trade policy

2.3.2. Trade policy

Further information on this programme can be found on the BULOG website:

is imported by private companies (2010). In regards to the tariff rate on rice

The second explanation could be the governments control on rice trade in

Production and consumption (1000 ton)

Milled Production (1000 MT)

Consumption and Residual (1000 MT)

Area Harvested (1000 HA)

TY Imports (1000 MT)

2.4. The Philippines

2.4.1. Domestic support policies

In addition to supporting rice farmers, NFA is also in charge of distributing rice,

In response to the food crisis in 2007/2008, the government launched its

2.4.2. Trade policy

Milled Production (1000 MT)

Consumption and Residual (1000 MT)

Area Harvested (1000 HA)

TY Imports (1000 MT)

Figure 2.4: The Philippines rice production, consumption and area

Harvested area (1000ha)

Production and consumption (1000 ton)